We Think That There Are More Issues For Cathay Biotech (SHSE:688065) Than Just Sluggish Earnings

Cathay Biotech Inc.'s (SHSE:688065) stock showed strength, with investors undeterred by its weak earnings report. We think that shareholders might be missing some concerning factors that our analysis found.

View our latest analysis for Cathay Biotech

The Impact Of Unusual Items On Profit

For anyone who wants to understand Cathay Biotech's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥74m worth of 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. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. Which is hardly surprising, given the name. We can see that Cathay Biotech's positive unusual items were quite significant relative to its profit in the year to March 2024. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Cathay Biotech.

Our Take On Cathay Biotech's Profit Performance

As we discussed above, we think the significant positive unusual item makes Cathay Biotech's earnings a poor guide to its underlying profitability. As a result, we think it may well be the case that Cathay Biotech's underlying earnings power is lower than its statutory profit. In further bad news, its earnings per share decreased in the last year. 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. If you'd like to know more about Cathay Biotech as a business, it's important to be aware of any risks it's facing. You'd be interested to know, that we found 1 warning sign for Cathay Biotech and you'll want to know about it.

Today we've zoomed in on a single data point to better understand the nature of Cathay Biotech's 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. While it might take a little research on your behalf, you may find this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying to be useful.

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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.