Following the solid earnings report from Shenzhen Weiguang Biological Products Co., Ltd. (SZSE:002880), the market responded by bidding up the stock price. However, we think that shareholders should be cautious as we found some worrying factors underlying the profit.
View our latest analysis for Shenzhen Weiguang Biological Products
The Impact Of Unusual Items On Profit
To properly understand Shenzhen Weiguang Biological Products' profit results, we need to consider the CN¥21m gain attributed to 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. And, after all, that's exactly what the accounting terminology implies. If Shenzhen Weiguang Biological Products 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 Shenzhen Weiguang Biological Products' Profit Performance
Arguably, Shenzhen Weiguang Biological Products' statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Shenzhen Weiguang Biological Products' statutory profits are better than its underlying earnings power. Nonetheless, it's still worth noting that its earnings per share have grown at 7.3% over the last three years. 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. For example - Shenzhen Weiguang Biological Products has 1 warning sign we think you should be aware of.
This note has only looked at a single factor that sheds light on the nature of Shenzhen Weiguang Biological Products' 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. 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
