Why SF DiamondLtd's (SZSE:300179) Shaky Earnings Are Just The Beginning Of Its Problems

SF Diamond Co.,Ltd.'s (SZSE:300179) stock showed strength, with investors undeterred by its weak earnings report. We think that shareholders might be missing some concerning factors that our analysis found.

View our latest analysis for SF DiamondLtd

The Impact Of Unusual Items On Profit

For anyone who wants to understand SF DiamondLtd's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥29m worth of unusual items. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. Which is hardly surprising, given the name. We can see that SF DiamondLtd's positive unusual items were quite significant relative to its profit in the year to December 2023. 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 SF DiamondLtd.

Our Take On SF DiamondLtd's Profit Performance

As we discussed above, we think the significant positive unusual item makes SF DiamondLtd's earnings a poor guide to its underlying profitability. For this reason, we think that SF DiamondLtd'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 on the bright side, its earnings per share have grown at an extremely impressive rate over the last three years. 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 want to do dive deeper into SF DiamondLtd, you'd also look into what risks it is currently facing. For instance, we've identified 2 warning signs for SF DiamondLtd (1 is a bit unpleasant) you should be familiar with.

This note has only looked at a single factor that sheds light on the nature of SF DiamondLtd's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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.