Earnings Troubles May Signal Larger Issues for Sichuan Meifeng Chemical Industry (SZSE:000731) Shareholders

The subdued market reaction suggests that Sichuan Meifeng Chemical Industry Co., Ltd.'s (SZSE:000731) recent earnings didn't contain any surprises. We think that investors are worried about some weaknesses underlying the earnings.

See our latest analysis for Sichuan Meifeng Chemical Industry

How Do Unusual Items Influence Profit?

For anyone who wants to understand Sichuan Meifeng Chemical Industry's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥33m 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. Which is hardly surprising, given the name. If Sichuan Meifeng Chemical Industry 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 Sichuan Meifeng Chemical Industry.

Our Take On Sichuan Meifeng Chemical Industry's Profit Performance

We'd posit that Sichuan Meifeng Chemical Industry's 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 Sichuan Meifeng Chemical Industry's statutory profits are better than its underlying earnings power. But on the bright side, its earnings per share have grown at an extremely impressive rate over the last three years. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. You'd be interested to know, that we found 2 warning signs for Sichuan Meifeng Chemical Industry and you'll want to know about them.

Today we've zoomed in on a single data point to better understand the nature of Sichuan Meifeng Chemical Industry's 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.