Ningbo Shanshan Co.,Ltd.'s (SHSE:600884) stock showed strength, with investors undeterred by its 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.
How Do Unusual Items Influence Profit?
For anyone who wants to understand Ningbo ShanshanLtd's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥139m 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. 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).
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 Ningbo ShanshanLtd's Profit Performance
Arguably, Ningbo ShanshanLtd's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Ningbo ShanshanLtd's true underlying earnings power is actually less than its statutory profit. Sadly, its EPS was down over 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. If you want to do dive deeper into Ningbo ShanshanLtd, you'd also look into what risks it is currently facing. For instance, we've identified 4 warning signs for Ningbo ShanshanLtd (2 can't be ignored) you should be familiar with.
This note has only looked at a single factor that sheds light on the nature of Ningbo ShanshanLtd'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 that insiders are buying.
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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.