Earnings Troubles May Signal Larger Issues for Shenzhen Institute of Building Research (SZSE:300675) Shareholders

Shenzhen Institute of Building Research Co., Ltd.'s (SZSE:300675) stock showed strength, with investors undeterred by its weak earnings report. While shareholders may be willing to overlook soft profit numbers, we believe that they should also be taking into account some other factors which may be cause for concern.

See our latest analysis for Shenzhen Institute of Building Research

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Shenzhen Institute of Building Research's profit received a boost of CN¥42m in unusual items, over the last year. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. 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, after all, that's exactly what the accounting terminology implies. Shenzhen Institute of Building Research had a rather significant contribution from unusual items relative to its profit 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.

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. In further bad news, its earnings per share decreased in the last year. 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Every company has risks, and we've spotted 4 warning signs for Shenzhen Institute of Building Research (of which 2 make us uncomfortable!) you should know about.

This note has only looked at a single factor that sheds light on 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 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.