Shanghai Industrial Urban Development Group Limited's (HKG:563) robust recent earnings didn't do much to move the stock. We believe that shareholders have noticed some concerning factors beyond the statutory profit numbers.

See our latest analysis for Shanghai Industrial Urban Development Group

How Do Unusual Items Influence Profit?

To properly understand Shanghai Industrial Urban Development Group's profit results, we need to consider the HK$1.2b gain attributed to unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. And, after all, that's exactly what the accounting terminology implies. Shanghai Industrial Urban Development Group had a rather significant contribution from unusual items relative to its profit to December 2021. 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 Shanghai Industrial Urban Development Group.

Our Take On Shanghai Industrial Urban Development Group's Profit Performance

As we discussed above, we think the significant positive unusual item makes Shanghai Industrial Urban Development Group's earnings a poor guide to its underlying profitability. As a result, we think it may well be the case that Shanghai Industrial Urban Development Group's underlying earnings power is lower than its statutory profit. But at least holders can take some solace from the 9.7% EPS growth in the last year. 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. For instance, we've identified 4 warning signs for Shanghai Industrial Urban Development Group (1 is a bit concerning) you should be familiar with.

Today we've zoomed in on a single data point to better understand the nature of Shanghai Industrial Urban Development Group'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. 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.