Shanghai New World Co., Ltd (SHSE:600628) just reported healthy earnings but the stock price didn't move much. We think that investors have missed some encouraging factors underlying the profit figures.
How Do Unusual Items Influence Profit?
Importantly, our data indicates that Shanghai New World's profit was reduced by CN¥29m, 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 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 Shanghai New World 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 Shanghai New World.
Our Take On Shanghai New World's Profit Performance
Unusual items (expenses) detracted from Shanghai New World's earnings over the last year, but we might see an improvement next year. Because of this, we think Shanghai New World's earnings potential is at least as good as it seems, and maybe even better! And on top of that, its earnings per share increased by 46% in the last year. 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Our analysis shows 2 warning signs for Shanghai New World (1 is potentially serious!) and we strongly recommend you look at them before investing.
This note has only looked at a single factor that sheds light on the nature of Shanghai New World'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.
