Shanghai NAR Industrial Co., Ltd's (SZSE:002825) recent soft profit numbers didn't appear to worry shareholders, as the stock price showed strength. Our analysis suggests that investors may have noticed some promising signs beyond the statutory profit figures.
The Impact Of Unusual Items On Profit
For anyone who wants to understand Shanghai NAR Industrial's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by CN¥23m due to unusual items. 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 Shanghai NAR Industrial doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.
Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Shanghai NAR Industrial.
Our Take On Shanghai NAR Industrial's Profit Performance
Because unusual items detracted from Shanghai NAR Industrial's earnings over the last year, you could argue that we can expect an improved result in the current quarter. Based on this observation, we consider it likely that Shanghai NAR Industrial's statutory profit actually understates its earnings potential! On the other hand, its EPS actually shrunk in 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Every company has risks, and we've spotted 2 warning signs for Shanghai NAR Industrial (of which 1 is a bit unpleasant!) you should know about.
This note has only looked at a single factor that sheds light on the nature of Shanghai NAR Industrial'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. 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.