Shanghai Sanyou Medical's (SHSE:688085) Soft Earnings Are Actually Better Than They Appear

The market for Shanghai Sanyou Medical Co., Ltd's (SHSE:688085) shares didn't move much after it posted weak earnings recently. We did some digging, and we believe the earnings are stronger than they seem.

View our latest analysis for Shanghai Sanyou Medical

How Do Unusual Items Influence Profit?

For anyone who wants to understand Shanghai Sanyou Medical's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by CN¥17m due to unusual items. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. 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 expenses don't come up again, we'd therefore expect Shanghai Sanyou Medical to produce a higher profit next year, all else being equal.

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 Shanghai Sanyou Medical's Profit Performance

Because unusual items detracted from Shanghai Sanyou Medical's earnings over the last year, you could argue that we can expect an improved result in the current quarter. Because of this, we think Shanghai Sanyou Medical's earnings potential is at least as good as it seems, and maybe even better! On the other hand, its EPS actually shrunk in the last twelve months. 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. In terms of investment risks, we've identified 2 warning signs with Shanghai Sanyou Medical, and understanding them should be part of your investment process.

This note has only looked at a single factor that sheds light on the nature of Shanghai Sanyou 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 that insiders are buying.

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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.