We Think That There Are More Issues For Chongqing Sulian PlasticLtd (SZSE:301397) Than Just Sluggish Earnings

Investors were disappointed by Chongqing Sulian Plastic Co.,Ltd.'s (SZSE:301397 ) latest earnings release. We did some further digging and think they have a few more reasons to be concerned beyond the statutory profit.

View our latest analysis for Chongqing Sulian PlasticLtd

The Impact Of Unusual Items On Profit

To properly understand Chongqing Sulian PlasticLtd's profit results, we need to consider the CN¥20m gain attributed to unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that's exactly what the accounting terminology implies. 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 Chongqing Sulian PlasticLtd.

Our Take On Chongqing Sulian PlasticLtd's Profit Performance

We'd posit that Chongqing Sulian PlasticLtd'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 Chongqing Sulian PlasticLtd's statutory profits are better than its underlying earnings power. But at least holders can take some solace from the 48% 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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. In terms of investment risks, we've identified 1 warning sign with Chongqing Sulian PlasticLtd, and understanding this should be part of your investment process.

This note has only looked at a single factor that sheds light on the nature of Chongqing Sulian PlasticLtd's profit. But there are plenty of other ways to inform your opinion of a company. 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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.

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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.