Shaanxi Sirui Advanced Materials' (SHSE:688102) Promising Earnings May Rest On Soft Foundations

Despite announcing strong earnings, Shaanxi Sirui Advanced Materials Co., Ltd.'s (SHSE:688102) stock was sluggish. We think that the market might be paying attention to some underlying factors that they find to be concerning.

View our latest analysis for Shaanxi Sirui Advanced Materials

How Do Unusual Items Influence Profit?

For anyone who wants to understand Shaanxi Sirui Advanced Materials' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥11m 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. 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'. If Shaanxi Sirui Advanced Materials 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 Shaanxi Sirui Advanced Materials' Profit Performance

We'd posit that Shaanxi Sirui Advanced Materials' statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Because of this, we think that it may be that Shaanxi Sirui Advanced Materials' statutory profits are better than its underlying earnings power. But at least holders can take some solace from the 57% per annum growth in EPS for the last three. 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 Shaanxi Sirui Advanced Materials at this point in time. While conducting our analysis, we found that Shaanxi Sirui Advanced Materials has 3 warning signs and it would be unwise to ignore these.

Today we've zoomed in on a single data point to better understand the nature of Shaanxi Sirui Advanced Materials' profit. 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.