The subdued stock price reaction suggests that Shenzhen Energy Group Co., Ltd.'s (SZSE:000027) strong earnings didn't offer any surprises. Our analysis suggests that investors might be missing some promising details.

How Do Unusual Items Influence Profit?

To properly understand Shenzhen Energy Group's profit results, we need to consider the CN¥1.5b expense attributed to unusual items. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. 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 Shenzhen Energy Group doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Shenzhen Energy Group.

Our Take On Shenzhen Energy Group's Profit Performance

Because unusual items detracted from Shenzhen Energy Group'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 Shenzhen Energy Group's statutory profit actually understates its earnings potential! And the EPS is up 15% over the last twelve months. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. If you'd like to know more about Shenzhen Energy Group as a business, it's important to be aware of any risks it's facing. When we did our research, we found 4 warning signs for Shenzhen Energy Group (2 can't be ignored!) that we believe deserve your full attention.

This note has only looked at a single factor that sheds light on the nature of Shenzhen Energy Group'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.