Maxnerva Technology Services Limited (HKG:1037) announced strong profits, but the stock was stagnant. Our analysis suggests that shareholders have noticed something concerning in the numbers.

See our latest analysis for Maxnerva Technology Services

How Do Unusual Items Influence Profit?

For anyone who wants to understand Maxnerva Technology Services' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥18m worth of unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. 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'. Maxnerva Technology Services had a rather significant contribution from unusual items relative to its profit to June 2022. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Maxnerva Technology Services.

Our Take On Maxnerva Technology Services' Profit Performance

As we discussed above, we think the significant positive unusual item makes Maxnerva Technology Services' earnings a poor guide to its underlying profitability. As a result, we think it may well be the case that Maxnerva Technology Services' underlying earnings power is lower than its statutory profit. The good news is that, its earnings per share increased by 69% 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. To help with this, we've discovered 3 warning signs (1 doesn't sit too well with us!) that you ought to be aware of before buying any shares in Maxnerva Technology Services.

This note has only looked at a single factor that sheds light on the nature of Maxnerva Technology Services' 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.

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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.