Sinostone(Guangdong)Ltd's (SZSE:001212) Problems Go Beyond Weak Profit

Despite Sinostone(Guangdong) Co.,Ltd.'s (SZSE:001212) recent earnings report having lackluster headline numbers, the market responded positively. Sometimes, shareholders are willing to ignore soft numbers with the hope that they will improve, but our analysis suggests this is unlikely for Sinostone(Guangdong)Ltd.

Check out our latest analysis for Sinostone(Guangdong)Ltd

The Impact Of Unusual Items On Profit

For anyone who wants to understand Sinostone(Guangdong)Ltd's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥5.0m worth of unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. And that's as you'd expect, given these boosts are described as 'unusual'. If Sinostone(Guangdong)Ltd 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 Sinostone(Guangdong)Ltd.

Our Take On Sinostone(Guangdong)Ltd's Profit Performance

We'd posit that Sinostone(Guangdong)Ltd's statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Therefore, it seems possible to us that Sinostone(Guangdong)Ltd's true underlying earnings power is actually less than its statutory profit. In further bad news, its earnings per share decreased in the last year. 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. So while earnings quality is important, it's equally important to consider the risks facing Sinostone(Guangdong)Ltd at this point in time. Every company has risks, and we've spotted 3 warning signs for Sinostone(Guangdong)Ltd (of which 1 is a bit concerning!) you should know about.

Today we've zoomed in on a single data point to better understand the nature of Sinostone(Guangdong)Ltd'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 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.