A lackluster earnings announcement from Sichuan Meifeng Chemical Industry Co., Ltd. (SZSE:000731) last week didn't sink the stock price. We think that investors are worried about some weaknesses underlying the earnings.

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Sichuan Meifeng Chemical Industry's profit received a boost of CN¥33m in unusual items, over the last year. 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).

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Sichuan Meifeng Chemical Industry.

Our Take On Sichuan Meifeng Chemical Industry's Profit Performance

Arguably, Sichuan Meifeng Chemical Industry's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Sichuan Meifeng Chemical Industry's true underlying earnings power is actually less than its statutory profit. But the good news is that its EPS growth over the last three years has been very impressive. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. If you want to do dive deeper into Sichuan Meifeng Chemical Industry, you'd also look into what risks it is currently facing. Every company has risks, and we've spotted 2 warning signs for Sichuan Meifeng Chemical Industry you should know about.

Today we've zoomed in on a single data point to better understand the nature of Sichuan Meifeng Chemical Industry's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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. While it might take a little research on your behalf, you may find this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying to be useful.

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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.