The subdued market reaction suggests that Swancor Advanced Materials Co., Ltd.'s (SHSE:688585) recent earnings didn't contain any surprises. We think that investors are worried about some weaknesses underlying the earnings.

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Swancor Advanced Materials' profit received a boost of CN¥8.3m 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'. 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 Swancor Advanced Materials.

Our Take On Swancor Advanced Materials' Profit Performance

Arguably, Swancor Advanced Materials' statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Swancor Advanced Materials' statutory profits are better than its underlying earnings power. But the good news is that its EPS growth over the last three years has been very impressive. 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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. To that end, you should learn about the 2 warning signs we've spotted with Swancor Advanced Materials (including 1 which is significant).

Today we've zoomed in on a single data point to better understand the nature of Swancor Advanced Materials' 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. 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.