Silvery Dragon Prestressed Materials Co.,LTD Tianjin (SHSE:603969) just reported some strong earnings, and the market reacted accordingly with a healthy uplift in the share price. However, our analysis suggests that shareholders may be missing some factors that indicate the earnings result was not as good as it looked.
The Impact Of Unusual Items On Profit
To properly understand Silvery Dragon Prestressed MaterialsLTD Tianjin's profit results, we need to consider the CN¥23m 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'. 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 Silvery Dragon Prestressed MaterialsLTD Tianjin.
Our Take On Silvery Dragon Prestressed MaterialsLTD Tianjin's Profit Performance
Arguably, Silvery Dragon Prestressed MaterialsLTD Tianjin's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Silvery Dragon Prestressed MaterialsLTD Tianjin's true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 25% per annum growth in EPS for the last three. 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 Silvery Dragon Prestressed MaterialsLTD Tianjin, you'd also look into what risks it is currently facing. For example, Silvery Dragon Prestressed MaterialsLTD Tianjin has 2 warning signs (and 1 which is concerning) we think you should know about.
This note has only looked at a single factor that sheds light on the nature of Silvery Dragon Prestressed MaterialsLTD Tianjin'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.
