Investors were disappointed with the weak earnings posted by Shanghai Luoman Technologies Inc. (SHSE:605289 ). While the headline numbers were soft, we believe that investors might be missing some encouraging factors.

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Shanghai Luoman Technologies' profit was reduced by CN¥5.6m, due to unusual items, over the last year. 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 Shanghai Luoman Technologies 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 Shanghai Luoman Technologies' Profit Performance

Because unusual items detracted from Shanghai Luoman Technologies' 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 Shanghai Luoman Technologies' statutory profit actually understates its earnings potential! On the other hand, its EPS actually shrunk in the last twelve months. 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. So while earnings quality is important, it's equally important to consider the risks facing Shanghai Luoman Technologies at this point in time. To help with this, we've discovered 2 warning signs (1 is significant!) that you ought to be aware of before buying any shares in Shanghai Luoman Technologies.

This note has only looked at a single factor that sheds light on the nature of Shanghai Luoman Technologies' 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. While it might take a little research on your behalf, you may find this free collection of companies boasting high return on equity, or this list of stocks with significant insider holdings to be useful.

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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.