The market shrugged off Shenzhen Institute of Building Research Co., Ltd.'s (SZSE:300675) solid earnings report. We think that investors might be worried about some concerning underlying factors.

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Shenzhen Institute of Building Research's profit received a boost of CN¥56m in unusual items, over the last year. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. And that's as you'd expect, given these boosts are described as 'unusual'. We can see that Shenzhen Institute of Building Research's positive unusual items were quite significant relative to its profit in the year to September 2024. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

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 Shenzhen Institute of Building Research's Profit Performance

As we discussed above, we think the significant positive unusual item makes Shenzhen Institute of Building Research's earnings a poor guide to its underlying profitability. For this reason, we think that Shenzhen Institute of Building Research's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. But the happy news is that, while acknowledging we have to look beyond the statutory numbers, those numbers are still improving, with EPS growing at a very high rate over the last year. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. If you'd like to know more about Shenzhen Institute of Building Research as a business, it's important to be aware of any risks it's facing. To that end, you should learn about the 3 warning signs we've spotted with Shenzhen Institute of Building Research (including 2 which make us uncomfortable).

Today we've zoomed in on a single data point to better understand the nature of Shenzhen Institute of Building Research'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.