Gulf Resources' (NASDAQ:GURE) Performance Is Even Better Than Its Earnings Suggest

Even though Gulf Resources, Inc.'s (NASDAQ:GURE) recent earnings release was robust, the market didn't seem to notice. Our analysis suggests that investors might be missing some promising details.

Our analysis indicates that GURE is potentially undervalued!

The Impact Of Unusual Items On Profit

For anyone who wants to understand Gulf Resources' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by US$4.3m due to unusual items. 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 Gulf Resources 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 Gulf Resources.

Our Take On Gulf Resources' Profit Performance

Unusual items (expenses) detracted from Gulf Resources' earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Gulf Resources' statutory profit actually understates its earnings potential! And on top of that, its earnings per share have grown at an extremely impressive rate over the last year. 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 Gulf Resources at this point in time. For example - Gulf Resources has 2 warning signs we think you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of Gulf Resources' 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 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.