Solid Earnings May Not Tell The Whole Story For Touchstone International Medical Science (SHSE:688013)

Following the solid earnings report from Touchstone International Medical Science Co., Ltd. (SHSE:688013), the market responded by bidding up the stock price. However, we think that shareholders should be cautious as we found some worrying factors underlying the profit.

Check out our latest analysis for Touchstone International Medical Science

How Do Unusual Items Influence Profit?

To properly understand Touchstone International Medical Science's profit results, we need to consider the CN¥5.2m gain attributed to 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. 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 Touchstone International Medical Science.

Our Take On Touchstone International Medical Science's Profit Performance

We'd posit that Touchstone International Medical Science's statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Therefore, it seems possible to us that Touchstone International Medical Science's true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 8.1% per annum growth in EPS for the last three. 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. While it's very important to consider the profit and loss statement, you can also learn a lot about a company by looking at its balance sheet. You can see our latest analysis on Touchstone International Medical Science's balance sheet health here.

Today we've zoomed in on a single data point to better understand the nature of Touchstone International Medical Science'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. 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.