Shandong Polymer Biochemicals' (SZSE:002476) Solid Earnings May Rest On Weak Foundations

Following the solid earnings report from Shandong Polymer Biochemicals Co., Ltd. (SZSE:002476), the market responded by bidding up the stock price. While the profit numbers were good, our analysis has found some concerning factors that shareholders should be aware of.

See our latest analysis for Shandong Polymer Biochemicals

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Shandong Polymer Biochemicals' profit received a boost of CN¥27m in unusual items, over the last year. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. 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'. Shandong Polymer Biochemicals had a rather significant contribution from unusual items relative to its profit to September 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 Shandong Polymer Biochemicals.

Our Take On Shandong Polymer Biochemicals' Profit Performance

As we discussed above, we think the significant positive unusual item makes Shandong Polymer Biochemicals' earnings a poor guide to its underlying profitability. As a result, we think it may well be the case that Shandong Polymer Biochemicals' underlying earnings power is lower than its statutory profit. On the bright side, the company showed enough improvement to book a profit this year, after losing money 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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. At Simply Wall St, we found 1 warning sign for Shandong Polymer Biochemicals and we think they deserve your attention.

This note has only looked at a single factor that sheds light on the nature of Shandong Polymer Biochemicals' 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 with significant insider holdings 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.