Investors Shouldn't Be Too Comfortable With Jiangxi Sanxin MedtecLtd's (SZSE:300453) Earnings

Jiangxi Sanxin Medtec Co.,Ltd.'s (SZSE:300453) robust earnings report didn't manage to move the market for its stock. Our analysis suggests that shareholders have noticed something concerning in the numbers.

Check out our latest analysis for Jiangxi Sanxin MedtecLtd

How Do Unusual Items Influence Profit?

For anyone who wants to understand Jiangxi Sanxin MedtecLtd's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥41m worth of unusual items. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. 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. Which is hardly surprising, given the name. If Jiangxi Sanxin MedtecLtd doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Jiangxi Sanxin MedtecLtd.

Our Take On Jiangxi Sanxin MedtecLtd's Profit Performance

We'd posit that Jiangxi Sanxin MedtecLtd's statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Therefore, it seems possible to us that Jiangxi Sanxin MedtecLtd's true underlying earnings power is actually less than its statutory profit. Nonetheless, it's still worth noting that its earnings per share have grown at 52% over the last three years. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Case in point: We've spotted 1 warning sign for Jiangxi Sanxin MedtecLtd you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of Jiangxi Sanxin MedtecLtd's profit. But there are plenty of other ways to inform your opinion of a company. For example, many people consider a high return on equity as an indication of favorable business economics, while others like to 'follow the money' and search out stocks that insiders are buying. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.