We Think That There Are Some Issues For Jiangsu ChengXing Phosph-Chemicals (SHSE:600078) Beyond Its Promising Earnings

Jiangsu ChengXing Phosph-Chemicals Co., Ltd. (SHSE:600078) just released a solid earnings report, and the stock displayed some strength. While the profit numbers were good, our analysis has found some concerning factors that shareholders should be aware of.

See our latest analysis for Jiangsu ChengXing Phosph-Chemicals

The Impact Of Unusual Items On Profit

To properly understand Jiangsu ChengXing Phosph-Chemicals' profit results, we need to consider the CN¥95m gain attributed to unusual items. 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. And that's as you'd expect, given these boosts are described as 'unusual'. We can see that Jiangsu ChengXing Phosph-Chemicals' positive unusual items were quite significant relative to its profit in the year to June 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 Jiangsu ChengXing Phosph-Chemicals.

Our Take On Jiangsu ChengXing Phosph-Chemicals' Profit Performance

As previously mentioned, Jiangsu ChengXing Phosph-Chemicals' large boost from unusual items won't be there indefinitely, so its statutory earnings are probably a poor guide to its underlying profitability. For this reason, we think that Jiangsu ChengXing Phosph-Chemicals' statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. The good news is that it earned a profit in the last twelve months, despite its previous loss. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. For instance, we've identified 2 warning signs for Jiangsu ChengXing Phosph-Chemicals (1 is concerning) you should be familiar with.

Today we've zoomed in on a single data point to better understand the nature of Jiangsu ChengXing Phosph-Chemicals' 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. 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.