Some Investors May Be Willing To Look Past 360 Ludashi Holdings' (HKG:3601) Soft Earnings

Shareholders appeared unconcerned with 360 Ludashi Holdings Limited's (HKG:3601) lackluster earnings report last week. We did some digging, and we believe the earnings are stronger than they seem.

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How Do Unusual Items Influence Profit?

Importantly, our data indicates that 360 Ludashi Holdings' profit was reduced by CN¥2.3m, due to unusual items, over the last year. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that's exactly what the accounting terminology implies. Assuming those unusual expenses don't come up again, we'd therefore expect 360 Ludashi Holdings to produce a higher profit next year, all else being equal.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of 360 Ludashi Holdings.

Our Take On 360 Ludashi Holdings' Profit Performance

Because unusual items detracted from 360 Ludashi Holdings' earnings over the last year, you could argue that we can expect an improved result in the current quarter. Based on this observation, we consider it likely that 360 Ludashi Holdings' statutory profit actually understates its earnings potential! Unfortunately, though, its earnings per share actually fell back over the 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. Every company has risks, and we've spotted 3 warning signs for 360 Ludashi Holdings (of which 1 can't be ignored!) you should know about.

Today we've zoomed in on a single data point to better understand the nature of 360 Ludashi Holdings' 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.