The market wasn't impressed with the soft earnings from Shenzhen XFH Technology Co.,Ltd (SZSE:300890) recently. We did some further digging and think they have a few more reasons to be concerned beyond the statutory profit.
The Impact Of Unusual Items On Profit
To properly understand Shenzhen XFH TechnologyLtd's profit results, we need to consider the CN¥12m gain attributed to unusual items. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. Which is hardly surprising, given the name. If Shenzhen XFH TechnologyLtd 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 Shenzhen XFH TechnologyLtd.
Our Take On Shenzhen XFH TechnologyLtd's Profit Performance
We'd posit that Shenzhen XFH TechnologyLtd's statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Because of this, we think that it may be that Shenzhen XFH TechnologyLtd's statutory profits are better than its underlying earnings power. Sadly, its EPS was down over the last twelve months. 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 Shenzhen XFH TechnologyLtd at this point in time. When we did our research, we found 4 warning signs for Shenzhen XFH TechnologyLtd (1 is potentially serious!) that we believe deserve your full attention.
This note has only looked at a single factor that sheds light on the nature of Shenzhen XFH TechnologyLtd'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.