We Wouldn't Rely On China Electronics Optics Valley Union Holding's (HKG:798) Statutory Earnings As A Guide

Statistically speaking, it is less risky to invest in profitable companies than in unprofitable ones. Having said that, sometimes statutory profit levels are not a good guide to ongoing profitability, because some short term one-off factor has impacted profit levels. Today we'll focus on whether this year's statutory profits are a good guide to understanding China Electronics Optics Valley Union Holding (HKG:798).

We like the fact that China Electronics Optics Valley Union Holding made a profit of CN¥548.2m on its revenue of CN¥3.16b, in the last year. As you can see in the chart below, it has grown its profits over the last three years, despite the fact its revenue has been steady.

View our latest analysis for China Electronics Optics Valley Union Holding

Of course, it is only sensible to look beyond the statutory profits and question how well those numbers represent the sustainable earnings power of the business. This article will focus on the impact unusual items have had on China Electronics Optics Valley Union Holding's statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of China Electronics Optics Valley Union Holding.

The Impact Of Unusual Items On Profit

Importantly, our data indicates that China Electronics Optics Valley Union Holding's profit received a boost of CN¥360m in unusual items, over the last year. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's as you'd expect, given these boosts are described as 'unusual'. We can see that China Electronics Optics Valley Union Holding's positive unusual items were quite significant relative to its profit in the year to June 2020. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

Our Take On China Electronics Optics Valley Union Holding's Profit Performance

As we discussed above, we think the significant positive unusual item makes China Electronics Optics Valley Union Holding'searnings a poor guide to its underlying profitability. As a result, we think it may well be the case that China Electronics Optics Valley Union Holding's underlying earnings power is lower than its statutory profit. Nonetheless, it's still worth noting that its earnings per share have grown at 15% over the last three years. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. If you want to do dive deeper into China Electronics Optics Valley Union Holding, you'd also look into what risks it is currently facing. For example, China Electronics Optics Valley Union Holding has 3 warning signs (and 1 which is concerning) we think you should know about.

Today we've zoomed in on a single data point to better understand the nature of China Electronics Optics Valley Union Holding's profit. But there are plenty of other ways to inform your opinion of a company. Some people consider a high return on equity to be a good sign of a quality business. While it might take a little research on your behalf, you may find this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying to be useful.

When trading China Electronics Optics Valley Union Holding or any other investment, use the platform considered by many to be the Professional's Gateway to the Worlds Market, Interactive Brokers. You get the lowest-cost* trading on stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

This article by Simply Wall St is general in nature. 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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.