Shandong Shengli Co., Ltd. (SZSE:000407) announced strong profits, but the stock was stagnant. We did some digging, and we found some concerning factors in the details.
The Impact Of Unusual Items On Profit
Importantly, our data indicates that Shandong Shengli's profit received a boost of CN¥36m in unusual items, over the last year. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. 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 Shandong Shengli.
Our Take On Shandong Shengli's Profit Performance
We'd posit that Shandong Shengli'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 Shandong Shengli's statutory profits are better than its underlying earnings power. Sadly, its EPS was down over the last twelve months. 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. If you'd like to know more about Shandong Shengli as a business, it's important to be aware of any risks it's facing. Case in point: We've spotted 2 warning signs for Shandong Shengli you should be mindful of and 1 of these bad boys is potentially serious.
This note has only looked at a single factor that sheds light on the nature of Shandong Shengli'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.
