Shareholders appeared unconcerned with Shenzhen Energy Group Co., Ltd.'s (SZSE:000027) lackluster earnings report last week. We think that the softer headline numbers might be getting counterbalanced by some positive underlying factors.

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Shenzhen Energy Group's profit was reduced by CN¥1.2b, due to unusual items, over the last year. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And that's hardly a surprise given these line items are considered unusual. Assuming those unusual expenses don't come up again, we'd therefore expect Shenzhen Energy Group to produce a higher profit next year, all else being equal.

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

Unusual items (expenses) detracted from Shenzhen Energy Group's earnings over the last year, but we might see an improvement next year. Because of this, we think Shenzhen Energy Group's earnings potential is at least as good as it seems, and maybe even better! On the other hand, its EPS actually shrunk in the last twelve months. 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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. Every company has risks, and we've spotted 5 warning signs for Shenzhen Energy Group (of which 3 don't sit too well with us!) you should know about.

This note has only looked at a single factor that sheds light on the nature of Shenzhen Energy Group's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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 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.