A lackluster earnings announcement from Shenguan Holdings (Group) Limited (HKG:829) last week didn't sink the stock price. We think that investors are worried about some weaknesses underlying the earnings.

Check out our latest analysis for Shenguan Holdings (Group)

How Do Unusual Items Influence Profit?

For anyone who wants to understand Shenguan Holdings (Group)'s profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥39m worth of unusual items. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. And that's as you'd expect, given these boosts are described as 'unusual'. Shenguan Holdings (Group) had a rather significant contribution from unusual items relative to its profit to June 2023. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Shenguan Holdings (Group).

Our Take On Shenguan Holdings (Group)'s Profit Performance

As we discussed above, we think the significant positive unusual item makes Shenguan Holdings (Group)'s earnings a poor guide to its underlying profitability. As a result, we think it may well be the case that Shenguan Holdings (Group)'s underlying earnings power is lower than its statutory profit. Sadly, its EPS was down over the last twelve months. 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. If you'd like to know more about Shenguan Holdings (Group) as a business, it's important to be aware of any risks it's facing. For example, we've found that Shenguan Holdings (Group) has 5 warning signs (2 make us uncomfortable!) 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 Shenguan Holdings (Group)'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.