Shanghai Electric Group's (HKG:2727) Solid Earnings May Rest On Weak Foundations

The market shrugged off Shanghai Electric Group Co., Ltd.'s (HKG:2727) solid earnings report. We think that investors might be worried about some concerning underlying factors.

View our latest analysis for Shanghai Electric Group

How Do Unusual Items Influence Profit?

For anyone who wants to understand Shanghai Electric Group's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥169m worth of unusual items. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. Which is hardly surprising, given the name. If Shanghai Electric Group doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

Our Take On Shanghai Electric Group's Profit Performance

We'd posit that Shanghai Electric Group's statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Because of this, we think that it may be that Shanghai Electric Group's statutory profits are better than its underlying earnings power. On the bright side, the company showed enough improvement to book a profit this year, after losing money last year. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. If you want to do dive deeper into Shanghai Electric Group, you'd also look into what risks it is currently facing. Every company has risks, and we've spotted 1 warning sign for Shanghai Electric Group you should know about.

Today we've zoomed in on a single data point to better understand the nature of Shanghai Electric Group's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. For example, many people consider a high return on equity as an indication of favorable business economics, while others like to 'follow the money' and search out stocks that insiders are buying. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.