Unsurprisingly, Zhongmin Baihui Retail Group Ltd.'s (SGX:5SR) stock price was strong on the back of its healthy earnings report. We did some analysis and think that investors are missing some details hidden beneath the profit numbers.
How Do Unusual Items Influence Profit?
For anyone who wants to understand Zhongmin Baihui Retail Group's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥5.4m 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. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. Which is hardly surprising, given the name. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).
Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Zhongmin Baihui Retail Group.
Our Take On Zhongmin Baihui Retail Group's Profit Performance
Arguably, Zhongmin Baihui Retail Group's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Zhongmin Baihui Retail Group's statutory profits are better than its underlying earnings power. The good news is that, its earnings per share increased by 12% 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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. To that end, you should learn about the 5 warning signs we've spotted with Zhongmin Baihui Retail Group (including 3 which are a bit unpleasant).
Today we've zoomed in on a single data point to better understand the nature of Zhongmin Baihui Retail 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.
