A lackluster earnings announcement from Shandong Weida Machinery Co., Ltd. (SZSE:002026) last week didn't sink the stock price. However, we believe that investors should be aware of some underlying factors which may be of concern.
The Impact Of Unusual Items On Profit
Importantly, our data indicates that Shandong Weida Machinery's profit received a boost of CN¥8.0m in unusual items, over the last year. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. Which is hardly surprising, given the name. If Shandong Weida Machinery doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.
Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Shandong Weida Machinery.
Our Take On Shandong Weida Machinery's Profit Performance
Arguably, Shandong Weida Machinery's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Shandong Weida Machinery's true underlying earnings power is actually less than its statutory profit. Sadly, its EPS was down over the last twelve months. 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 if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. At Simply Wall St, we found 2 warning signs for Shandong Weida Machinery and we think they deserve your attention.
Today we've zoomed in on a single data point to better understand the nature of Shandong Weida Machinery's 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.