Guangzhou LBP Medicine Science & Technology's (SHSE:688393) Problems Go Beyond Poor Profit

Guangzhou LBP Medicine Science & Technology Co., Ltd.'s (SHSE:688393) stock wasn't much affected by its recent lackluster earnings numbers. We did some digging, and we believe that investors are missing some worrying factors underlying the profit figures.

Check out our latest analysis for Guangzhou LBP Medicine Science & Technology

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Guangzhou LBP Medicine Science & Technology's profit received a boost of CN¥9.9m in unusual items, over the last year. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. And that's as you'd expect, given these boosts are described as 'unusual'. We can see that Guangzhou LBP Medicine Science & Technology'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.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Guangzhou LBP Medicine Science & Technology.

An Unusual Tax Situation

Just as we noted the unusual items, we must inform you that Guangzhou LBP Medicine Science & Technology received a tax benefit which contributed CN¥9.1m to the bottom line. This is of course a bit out of the ordinary, given it is more common for companies to be paying tax than receiving tax benefits! The receipt of a tax benefit is obviously a good thing, on its own. However, our data indicates that tax benefits can temporarily boost statutory profit in the year it is booked, but subsequently profit may fall back. In the likely event the tax benefit is not repeated, we'd expect to see its statutory profit levels drop, at least in the absence of strong growth.

Our Take On Guangzhou LBP Medicine Science & Technology's Profit Performance

In the last year Guangzhou LBP Medicine Science & Technology received a tax benefit, which boosted its profit in a way that might not be much more sustainable than turning prime farmland into gas fields. And on top of that, it also saw an unusual item boost its profit, suggesting that next year might see a lower profit number, if these events are not repeated. On reflection, the above-mentioned factors give us the strong impression that Guangzhou LBP Medicine Science & Technology'sunderlying earnings power is not as good as it might seem, based on the statutory profit numbers. If you'd like to know more about Guangzhou LBP Medicine Science & Technology as a business, it's important to be aware of any risks it's facing. Our analysis shows 3 warning signs for Guangzhou LBP Medicine Science & Technology (1 is concerning!) and we strongly recommend you look at them before investing.

In this article we've looked at a number of factors that can impair the utility of profit numbers, and we've come away cautious. 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.