SINOMACH HEAVY EQUIPMENT GROUP CO.,LTD's (SHSE:601399) solid earnings announcement recently didn't do much to the stock price. We did some analysis to find out why and believe that investors might be missing some encouraging factors contained in the earnings.

The Impact Of Unusual Items On Profit

To properly understand SINOMACH HEAVY EQUIPMENT GROUPLTD's profit results, we need to consider the CN¥148m expense attributed to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And, after all, that's exactly what the accounting terminology implies. Assuming those unusual expenses don't come up again, we'd therefore expect SINOMACH HEAVY EQUIPMENT GROUPLTD 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 SINOMACH HEAVY EQUIPMENT GROUPLTD.

Our Take On SINOMACH HEAVY EQUIPMENT GROUPLTD's Profit Performance

Unusual items (expenses) detracted from SINOMACH HEAVY EQUIPMENT GROUPLTD's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that SINOMACH HEAVY EQUIPMENT GROUPLTD's statutory profit actually understates its earnings potential! And on top of that, its earnings per share have grown at 13% per year 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. So while earnings quality is important, it's equally important to consider the risks facing SINOMACH HEAVY EQUIPMENT GROUPLTD at this point in time. For example - SINOMACH HEAVY EQUIPMENT GROUPLTD has 1 warning sign we think you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of SINOMACH HEAVY EQUIPMENT GROUPLTD's 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.