Investors were disappointed by Nantong Haixing Electronics Co., Ltd.'s (SHSE:603115 ) latest earnings release. We did some analysis, and found that there are some reasons to be cautious about the headline numbers.
How Do Unusual Items Influence Profit?
To properly understand Nantong Haixing Electronics' profit results, we need to consider the CN¥21m gain attributed to unusual items. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. 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'. 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 Nantong Haixing Electronics.
Our Take On Nantong Haixing Electronics' Profit Performance
Arguably, Nantong Haixing Electronics' statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Nantong Haixing Electronics' statutory profits are better than its underlying earnings power. In further bad news, its earnings per share decreased in 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 Nantong Haixing Electronics at this point in time. Every company has risks, and we've spotted 1 warning sign for Nantong Haixing Electronics you should know about.
This note has only looked at a single factor that sheds light on the nature of Nantong Haixing Electronics' 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.
