Zhejiang Dehong Automotive Electronic & Electrical Co., Ltd. (SHSE:603701) announced strong profits, but the stock was stagnant. We did some digging, and we found some concerning factors in the details.

How Do Unusual Items Influence Profit?

To properly understand Zhejiang Dehong Automotive Electronic & Electrical's profit results, we need to consider the CN¥3.3m gain attributed to unusual items. 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. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Zhejiang Dehong Automotive Electronic & Electrical.

Our Take On Zhejiang Dehong Automotive Electronic & Electrical's Profit Performance

We'd posit that Zhejiang Dehong Automotive Electronic & Electrical's statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Therefore, it seems possible to us that Zhejiang Dehong Automotive Electronic & Electrical's true underlying earnings power is actually less than its statutory profit. The good news is that, its earnings per share increased by 75% 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. At Simply Wall St, we found 1 warning sign for Zhejiang Dehong Automotive Electronic & Electrical and we think they deserve your attention.

This note has only looked at a single factor that sheds light on the nature of Zhejiang Dehong Automotive Electronic & Electrical's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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.