The market seemed underwhelmed by last week's earnings announcement from NetDragon Websoft Holdings Limited (HKG:777) despite the healthy numbers. Our analysis suggests that shareholders might be missing some positive underlying factors in the earnings report.

Check out our latest analysis for NetDragon Websoft Holdings

The Impact Of Unusual Items On Profit

Importantly, our data indicates that NetDragon Websoft Holdings' profit was reduced by CN¥186m, due to unusual items, over the last year. 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 that's hardly a surprise given these line items are considered unusual. If NetDragon Websoft Holdings doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

Our Take On NetDragon Websoft Holdings' Profit Performance

Unusual items (expenses) detracted from NetDragon Websoft Holdings' earnings over the last year, but we might see an improvement next year. Because of this, we think NetDragon Websoft Holdings' earnings potential is at least as good as it seems, and maybe even better! And the EPS is up 51% annually, over the last three years. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. So while earnings quality is important, it's equally important to consider the risks facing NetDragon Websoft Holdings at this point in time. For example - NetDragon Websoft Holdings has 2 warning signs we think you should be aware of.

This note has only looked at a single factor that sheds light on the nature of NetDragon Websoft Holdings' profit. But there are plenty of other ways to inform your opinion of a company. 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.