The market rallied behind Shenzhen HeungKong Holding Co.,Ltd's (SHSE:600162) stock, leading do a rise in the share price after its recent weak earnings report. While shareholders may be willing to overlook soft profit numbers, we believe that they should also be taking into account some other factors which may be cause for concern.

The Impact Of Unusual Items On Profit

For anyone who wants to understand Shenzhen HeungKong HoldingLtd's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥51m worth of unusual items. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. Which is hardly surprising, given the name. Shenzhen HeungKong HoldingLtd had a rather significant contribution from unusual items relative to its profit to September 2024. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

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

Our Take On Shenzhen HeungKong HoldingLtd's Profit Performance

As we discussed above, we think the significant positive unusual item makes Shenzhen HeungKong HoldingLtd's earnings a poor guide to its underlying profitability. As a result, we think it may well be the case that Shenzhen HeungKong HoldingLtd's underlying earnings power is lower than its statutory profit. Sadly, its EPS was down over 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. If you'd like to know more about Shenzhen HeungKong HoldingLtd as a business, it's important to be aware of any risks it's facing. Be aware that Shenzhen HeungKong HoldingLtd is showing 4 warning signs in our investment analysis and 2 of those don't sit too well with us...

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