Shanghai No.1 PharmacyLtd's (SHSE:600833) Shareholders Have More To Worry About Than Only Soft Earnings

A lackluster earnings announcement from Shanghai No.1 Pharmacy Co.,Ltd. (SHSE:600833) last week didn't sink the stock price. However, we believe that investors should be aware of some underlying factors which may be of concern.

Check out our latest analysis for Shanghai No.1 PharmacyLtd

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Shanghai No.1 PharmacyLtd's profit received a boost of CN¥92m 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, after all, that's exactly what the accounting terminology implies. We can see that Shanghai No.1 PharmacyLtd'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 Shanghai No.1 PharmacyLtd.

Our Take On Shanghai No.1 PharmacyLtd's Profit Performance

As we discussed above, we think the significant positive unusual item makes Shanghai No.1 PharmacyLtd's earnings a poor guide to its underlying profitability. For this reason, we think that Shanghai No.1 PharmacyLtd's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. Nonetheless, it's still worth noting that its earnings per share have grown at 29% over the last three years. 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. So while earnings quality is important, it's equally important to consider the risks facing Shanghai No.1 PharmacyLtd at this point in time. You'd be interested to know, that we found 2 warning signs for Shanghai No.1 PharmacyLtd and you'll want to know about these.

Today we've zoomed in on a single data point to better understand the nature of Shanghai No.1 PharmacyLtd'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. 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 that insiders are buying 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.