Even though ZTE Corporation's (SZSE:000063) recent earnings release was robust, the market didn't seem to notice. Our analysis suggests that investors might be missing some promising details.
How Do Unusual Items Influence Profit?
For anyone who wants to understand ZTE's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by CN¥1.0b due to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that's exactly what the accounting terminology implies. If ZTE 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 ZTE's Profit Performance
Because unusual items detracted from ZTE's earnings over the last year, you could argue that we can expect an improved result in the current quarter. Based on this observation, we consider it likely that ZTE's statutory profit actually understates its earnings potential! And on top of that, its earnings per share have grown at an extremely impressive rate over the last three years. 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. If you want to do dive deeper into ZTE, you'd also look into what risks it is currently facing. You'd be interested to know, that we found 1 warning sign for ZTE and you'll want to know about this.
Today we've zoomed in on a single data point to better understand the nature of ZTE's profit. But there are plenty of other ways to inform your opinion of a company. For example, many people consider a high return on equity as an indication of favorable business economics, while others like to 'follow the money' and search out stocks that insiders are buying. 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.
