A lackluster earnings announcement from Leaguer (Shenzhen) Microelectronics Corp. (SHSE:688589) last week didn't sink the stock price. However, we believe that investors should be aware of some underlying factors which may be of concern.

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Leaguer (Shenzhen) Microelectronics' profit received a boost of CN¥25m in unusual items, over the last year. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. And that's as you'd expect, given these boosts are described as 'unusual'. Leaguer (Shenzhen) Microelectronics had a rather significant contribution from unusual items relative to its profit to September 2024. 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 Leaguer (Shenzhen) Microelectronics.

Our Take On Leaguer (Shenzhen) Microelectronics' Profit Performance

As previously mentioned, Leaguer (Shenzhen) Microelectronics' large boost from unusual items won't be there indefinitely, so its statutory earnings are probably a poor guide to its underlying profitability. As a result, we think it may well be the case that Leaguer (Shenzhen) Microelectronics' underlying earnings power is lower than its statutory profit. But on the bright side, its earnings per share have grown at an extremely impressive rate over the last three years. 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 Leaguer (Shenzhen) Microelectronics as a business, it's important to be aware of any risks it's facing. Every company has risks, and we've spotted 3 warning signs for Leaguer (Shenzhen) Microelectronics you should know about.

Today we've zoomed in on a single data point to better understand the nature of Leaguer (Shenzhen) Microelectronics' profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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 with high insider ownership.

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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.