Following the solid earnings report from Shandong Polymer Biochemicals Co., Ltd. (SZSE:002476), the market responded by bidding up the stock price. While the profit numbers were good, our analysis has found some concerning factors that shareholders should be aware of.
The Impact Of Unusual Items On Profit
For anyone who wants to understand Shandong Polymer Biochemicals' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥26m worth of unusual items. 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'. We can see that Shandong Polymer Biochemicals' positive unusual items were quite significant relative to its profit in the year to September 2024. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.
Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Shandong Polymer Biochemicals.
Our Take On Shandong Polymer Biochemicals' Profit Performance
As previously mentioned, Shandong Polymer Biochemicals' large boost from unusual items won't be there indefinitely, so its statutory earnings are probably a poor guide to its underlying profitability. For this reason, we think that Shandong Polymer Biochemicals' statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. On the bright side, the company showed enough improvement to book a profit this year, after losing money last year. 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 Shandong Polymer Biochemicals, you'd also look into what risks it is currently facing. You'd be interested to know, that we found 1 warning sign for Shandong Polymer Biochemicals and you'll want to know about this.
This note has only looked at a single factor that sheds light on the nature of Shandong Polymer Biochemicals' profit. But there are plenty of other ways to inform your opinion of a company. 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.
