Guangdong Yantang Dairy's (SZSE:002732) Earnings Are Of Questionable Quality

Despite posting some strong earnings, the market for Guangdong Yantang Dairy Co., Ltd.'s (SZSE:002732) stock hasn't moved much. We did some digging, and we found some concerning factors in the details.

Check out our latest analysis for Guangdong Yantang Dairy

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Guangdong Yantang Dairy's profit received a boost of CN¥24m 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 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).

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 Guangdong Yantang Dairy's Profit Performance

Arguably, Guangdong Yantang Dairy's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Guangdong Yantang Dairy's true underlying earnings power is actually less than its statutory profit. But on the bright side, its earnings per share have grown at an extremely impressive rate 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 if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. Case in point: We've spotted 1 warning sign for Guangdong Yantang Dairy you should be aware of.

This note has only looked at a single factor that sheds light on the nature of Guangdong Yantang Dairy'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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.