Chongqing Baiya Sanitary Products' (SZSE:003006) Solid Earnings May Rest On Weak Foundations

Chongqing Baiya Sanitary Products Co., Ltd.'s (SZSE:003006) robust recent earnings didn't do much to move the stock. We believe that shareholders have noticed some concerning factors beyond the statutory profit numbers.

View our latest analysis for Chongqing Baiya Sanitary Products

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Chongqing Baiya Sanitary Products' profit received a boost of CN¥20m in unusual items, over the last year. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. Which is hardly surprising, given the name. If Chongqing Baiya Sanitary Products doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

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 Chongqing Baiya Sanitary Products' Profit Performance

We'd posit that Chongqing Baiya Sanitary Products' statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Therefore, it seems possible to us that Chongqing Baiya Sanitary Products' 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 22% 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. So while earnings quality is important, it's equally important to consider the risks facing Chongqing Baiya Sanitary Products at this point in time. In terms of investment risks, we've identified 1 warning sign with Chongqing Baiya Sanitary Products, and understanding this should be part of your investment process.

This note has only looked at a single factor that sheds light on the nature of Chongqing Baiya Sanitary Products' profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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 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.