Despite posting healthy earnings, Jolywood (Suzhou) Sunwatt Co., Ltd.'s (SZSE:300393 ) stock has been quite weak. Our analysis suggests that there are some reasons for hope that investors should be aware of.

How Do Unusual Items Influence Profit?

For anyone who wants to understand Jolywood (Suzhou) Sunwatt's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by CN¥328m 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, after all, that's exactly what the accounting terminology implies. If Jolywood (Suzhou) Sunwatt doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming 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 Jolywood (Suzhou) Sunwatt's Profit Performance

Unusual items (expenses) detracted from Jolywood (Suzhou) Sunwatt's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Jolywood (Suzhou) Sunwatt's statutory profit actually understates its earnings potential! And on top of that, its earnings per share increased by 30% in 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. For example, we've found that Jolywood (Suzhou) Sunwatt has 2 warning signs (1 is a bit concerning!) that deserve your attention before going any further with your analysis.

Today we've zoomed in on a single data point to better understand the nature of Jolywood (Suzhou) Sunwatt'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 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.