Even though Xiamen Solex High-tech Industries Co., Ltd.'s (SHSE:603992) recent earnings release was robust, the market didn't seem to notice. Investors are probably missing some underlying factors which are encouraging for the future of the company.
How Do Unusual Items Influence Profit?
To properly understand Xiamen Solex High-tech Industries' profit results, we need to consider the CN¥69m expense attributed to unusual items. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's hardly a surprise given these line items are considered unusual. Assuming those unusual expenses don't come up again, we'd therefore expect Xiamen Solex High-tech Industries to produce a higher profit next year, all else being equal.
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 Xiamen Solex High-tech Industries' Profit Performance
Unusual items (expenses) detracted from Xiamen Solex High-tech Industries' earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Xiamen Solex High-tech Industries' 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. 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. While conducting our analysis, we found that Xiamen Solex High-tech Industries has 1 warning sign and it would be unwise to ignore it.
Today we've zoomed in on a single data point to better understand the nature of Xiamen Solex High-tech Industries' profit. But there are plenty of other ways to inform your opinion of a company. 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.