Tianshui Zhongxing Bio-technologyLtd's (SZSE:002772) Anemic Earnings Might Be Worse Than You Think

Tianshui Zhongxing Bio-technology Co.,Ltd.'s (SZSE:002772) recent weak earnings report didn't cause a big stock movement. We think that investors are worried about some weaknesses underlying the earnings.

Check out our latest analysis for Tianshui Zhongxing Bio-technologyLtd

How Do Unusual Items Influence Profit?

To properly understand Tianshui Zhongxing Bio-technologyLtd's profit results, we need to consider the CN¥21m gain attributed to unusual items. 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).

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Tianshui Zhongxing Bio-technologyLtd.

Our Take On Tianshui Zhongxing Bio-technologyLtd's Profit Performance

Arguably, Tianshui Zhongxing Bio-technologyLtd's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Tianshui Zhongxing Bio-technologyLtd's statutory profits are better than its underlying earnings power. But on the bright side, its earnings per share have grown at an extremely impressive rate over the last three years. 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 while earnings quality is important, it's equally important to consider the risks facing Tianshui Zhongxing Bio-technologyLtd at this point in time. While conducting our analysis, we found that Tianshui Zhongxing Bio-technologyLtd has 3 warning signs and it would be unwise to ignore these bad boys.

This note has only looked at a single factor that sheds light on the nature of Tianshui Zhongxing Bio-technologyLtd's profit. But there are plenty of other ways to inform your opinion of a company. Some people consider a high return on equity to be a good sign of a quality business. 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 with significant insider holdings 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.