Macmic Science&Technology Co.,Ltd.'s (SHSE:688711) recent weak earnings report didn't cause a big stock movement. We think that investors are worried about some weaknesses underlying the earnings.
An Unusual Tax Situation
Macmic Science&TechnologyLtd reported a tax benefit of CN¥8.0m, which is well worth noting. This is of course a bit out of the ordinary, given it is more common for companies to be paying tax than receiving tax benefits! We're sure the company was pleased with its tax benefit. However, the devil in the detail is that these kind of benefits only impact in the year they are booked, and are often one-off in nature. Assuming the tax benefit is not repeated every year, we could see its profitability drop noticeably, all else being equal. So while we think it's great to receive a tax benefit, it does tend to imply an increased risk that the statutory profit overstates the sustainable earnings power of the business.
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 Macmic Science&TechnologyLtd's Profit Performance
As we have already discussed Macmic Science&TechnologyLtd reported that it received a tax benefit, rather than paying tax, in the last year. Given that sort of benefit is not recurring, a focus on the statutory profit might make the company seem better than it really is. Therefore, it seems possible to us that Macmic Science&TechnologyLtd's true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 9.1% 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'd like to know more about Macmic Science&TechnologyLtd as a business, it's important to be aware of any risks it's facing. When we did our research, we found 3 warning signs for Macmic Science&TechnologyLtd (1 is significant!) that we believe deserve your full attention.
This note has only looked at a single factor that sheds light on the nature of Macmic Science&TechnologyLtd'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 with significant insider holdings 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.
