Investors were disappointed by Sanjiang Shopping Club Co.,Ltd's (SHSE:601116 ) latest earnings release. We did some analysis, and found that there are some reasons to be cautious about the headline numbers.

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Sanjiang Shopping ClubLtd's profit received a boost of CN¥13m in unusual items, over the last year. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that's exactly what the accounting terminology implies. If Sanjiang Shopping ClubLtd doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Sanjiang Shopping ClubLtd.

Our Take On Sanjiang Shopping ClubLtd's Profit Performance

We'd posit that Sanjiang Shopping ClubLtd's statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Because of this, we think that it may be that Sanjiang Shopping ClubLtd's statutory profits are better than its underlying earnings power. But at least holders can take some solace from the 57% per annum growth in EPS for the last three. 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. Case in point: We've spotted 1 warning sign for Sanjiang Shopping ClubLtd you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of Sanjiang Shopping ClubLtd'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.