Cosmos Machinery Enterprises Limited (HKG:118) just reported healthy earnings but the stock price didn't move much. Our analysis suggests that investors might be missing some promising details.

Check out our latest analysis for Cosmos Machinery Enterprises

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Cosmos Machinery Enterprises' profit was reduced by HK$20m, due to unusual items, over the last year. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. 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 Cosmos Machinery Enterprises 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 Cosmos Machinery Enterprises.

Our Take On Cosmos Machinery Enterprises' Profit Performance

Unusual items (expenses) detracted from Cosmos Machinery Enterprises' earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Cosmos Machinery Enterprises' statutory profit actually understates its earnings potential! And on top of that, its earnings per share have grown at an extremely impressive rate over 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. If you want to do dive deeper into Cosmos Machinery Enterprises, you'd also look into what risks it is currently facing. You'd be interested to know, that we found 1 warning sign for Cosmos Machinery Enterprises and you'll want to know about this.

This note has only looked at a single factor that sheds light on the nature of Cosmos Machinery Enterprises' 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. 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.