Shandong Longquan Pipe IndustryLtd (SZSE:002671) Strong Profits May Be Masking Some Underlying Issues

The recent earnings posted by Shandong Longquan Pipe Industry Co.,Ltd (SZSE:002671) were solid, but the stock didn't move as much as we expected. However the statutory profit number doesn't tell the whole story, and we have found some factors which might be of concern to shareholders.

Check out our latest analysis for Shandong Longquan Pipe IndustryLtd

How Do Unusual Items Influence Profit?

For anyone who wants to understand Shandong Longquan Pipe IndustryLtd's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥8.1m 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. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Shandong Longquan Pipe IndustryLtd.

Our Take On Shandong Longquan Pipe IndustryLtd's Profit Performance

We'd posit that Shandong Longquan Pipe IndustryLtd'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 Shandong Longquan Pipe IndustryLtd's statutory profits are better than its underlying earnings power. On the bright side, the company showed enough improvement to book a profit this year, after losing money 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Case in point: We've spotted 1 warning sign for Shandong Longquan Pipe IndustryLtd you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of Shandong Longquan Pipe IndustryLtd's profit. But there are plenty of other ways to inform your opinion of a company. 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. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.