The market wasn't impressed with the soft earnings from 3onedata Co., Ltd. (SHSE:688618) recently. Our analysis has found some reasons to be concerned, beyond the weak headline numbers.

The Impact Of Unusual Items On Profit

Importantly, our data indicates that 3onedata's profit received a boost of CN¥8.7m 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. 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 3onedata doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

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 3onedata's Profit Performance

We'd posit that 3onedata's statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Therefore, it seems possible to us that 3onedata's true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 5.7% per annum growth in EPS for the last three. 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 3onedata at this point in time. You'd be interested to know, that we found 3 warning signs for 3onedata and you'll want to know about these.

This note has only looked at a single factor that sheds light on the nature of 3onedata'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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.

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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.