Sunfonda Group Holdings' (HKG:1771) Problems Go Beyond Weak Profit

Investors were disappointed by Sunfonda Group Holdings Limited's (HKG:1771 ) latest earnings release. We did some analysis, and found that there are some reasons to be cautious about the headline numbers.

Check out our latest analysis for Sunfonda Group Holdings

How Do Unusual Items Influence Profit?

For anyone who wants to understand Sunfonda Group Holdings' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥11m 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. 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 items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).

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

Our Take On Sunfonda Group Holdings' Profit Performance

Arguably, Sunfonda Group Holdings' statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Sunfonda Group Holdings' statutory profits are better than its underlying earnings power. Sadly, its EPS was down over the last twelve months. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. So while earnings quality is important, it's equally important to consider the risks facing Sunfonda Group Holdings at this point in time. For instance, we've identified 6 warning signs for Sunfonda Group Holdings (3 are significant) you should be familiar with.

Today we've zoomed in on a single data point to better understand the nature of Sunfonda Group Holdings' profit. But there is always more to discover if you are capable of focussing your mind on minutiae. Some people consider a high return on equity to be a good sign of a quality business. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.

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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.