Weak Statutory Earnings May Not Tell The Whole Story For Shanghai Kelai Mechatronics EngineeringLtd (SHSE:603960)

A lackluster earnings announcement from Shanghai Kelai Mechatronics Engineering Co.,Ltd. (SHSE:603960) 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.

View our latest analysis for Shanghai Kelai Mechatronics EngineeringLtd

The Impact Of Unusual Items On Profit

To properly understand Shanghai Kelai Mechatronics EngineeringLtd's profit results, we need to consider the CN¥8.0m gain attributed to unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's as you'd expect, given these boosts are described as 'unusual'. If Shanghai Kelai Mechatronics EngineeringLtd doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current 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 Kelai Mechatronics EngineeringLtd's Profit Performance

Arguably, Shanghai Kelai Mechatronics EngineeringLtd's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Shanghai Kelai Mechatronics EngineeringLtd's true underlying earnings power is actually less than its statutory profit. In further bad news, its earnings per share decreased in the last year. 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. While it's really important to consider how well a company's statutory earnings represent its true earnings power, it's also worth taking a look at what analysts are forecasting for the future. At Simply Wall St, we have analyst estimates which you can view by clicking here.

This note has only looked at a single factor that sheds light on the nature of Shanghai Kelai Mechatronics EngineeringLtd'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. 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.