Hangzhou Electronic Soul Network Technology Co., Ltd.'s (SHSE:603258) 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 Hangzhou Electronic Soul Network Technology's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by CN¥74m due 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. Hangzhou Electronic Soul Network Technology took a rather significant hit from unusual items in the year to March 2024. All else being equal, this would likely have the effect of making the statutory profit look worse than its underlying earnings power.

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 Hangzhou Electronic Soul Network Technology's Profit Performance

As we discussed above, we think the significant unusual expense will make Hangzhou Electronic Soul Network Technology's statutory profit lower than it would otherwise have been. Because of this, we think Hangzhou Electronic Soul Network Technology's underlying earnings potential is as good as, or possibly even better, than the statutory profit makes it seem! On the other hand, its EPS actually shrunk in the last twelve months. 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. So while earnings quality is important, it's equally important to consider the risks facing Hangzhou Electronic Soul Network Technology at this point in time. While conducting our analysis, we found that Hangzhou Electronic Soul Network Technology has 4 warning signs and it would be unwise to ignore them.

Today we've zoomed in on a single data point to better understand the nature of Hangzhou Electronic Soul Network Technology's 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.