Zhende Medical's (SHSE:603301) Weak Earnings May Only Reveal A Part Of The Whole Picture

A lackluster earnings announcement from Zhende Medical Co., Ltd. (SHSE:603301) last week didn't sink the stock price. Our analysis suggests that along with soft profit numbers, investors should be aware of some other underlying weaknesses in the numbers.

See our latest analysis for Zhende Medical

How Do Unusual Items Influence Profit?

For anyone who wants to understand Zhende Medical's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥95m worth of unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. 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. We can see that Zhende Medical's positive unusual items were quite significant relative to its profit in the year to September 2024. 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 Zhende Medical's Profit Performance

As we discussed above, we think the significant positive unusual item makes Zhende Medical's earnings a poor guide to its underlying profitability. For this reason, we think that Zhende Medical's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. Sadly, its EPS was down over the last twelve months. 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. If you'd like to know more about Zhende Medical as a business, it's important to be aware of any risks it's facing. You'd be interested to know, that we found 2 warning signs for Zhende Medical and you'll want to know about them.

This note has only looked at a single factor that sheds light on the nature of Zhende Medical'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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.

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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.