Jiangsu Sidike New Materials Science & Technology's (SZSE:300806) Sluggish Earnings Might Be Just The Beginning Of Its Problems

The market rallied behind Jiangsu Sidike New Materials Science & Technology Co., Ltd.'s (SZSE:300806) stock, leading do a rise in the share price after its recent weak earnings report. Sometimes, shareholders are willing to ignore soft numbers with the hope that they will improve, but our analysis suggests this is unlikely for Jiangsu Sidike New Materials Science & Technology.

Check out our latest analysis for Jiangsu Sidike New Materials Science & Technology

An Unusual Tax Situation

We can see that Jiangsu Sidike New Materials Science & Technology received a tax benefit of CN¥47m. It's always a bit noteworthy when a company is paid by the tax man, rather than paying the tax man. Of course, prima facie it's great to receive a tax benefit. However, the devil in the detail is that these kind of benefits only impact in the year they are booked, and are often one-off in nature. In the likely event the tax benefit is not repeated, we'd expect to see its statutory profit levels drop, at least in the absence of strong growth. While we think it's good that the company has booked a tax benefit, it does mean that there's every chance the statutory profit will come in a lot higher than it would be if the income was adjusted for one-off factors.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Jiangsu Sidike New Materials Science & Technology.

Our Take On Jiangsu Sidike New Materials Science & Technology's Profit Performance

As we have already discussed Jiangsu Sidike New Materials Science & Technology reported that it received a tax benefit, rather than paying tax, in the last year. As a result we don't think its profit result, which includes that tax-boost, is a good guide to its sustainable profit levels. Therefore, it seems possible to us that Jiangsu Sidike New Materials Science & Technology'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. 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. For example, Jiangsu Sidike New Materials Science & Technology has 5 warning signs (and 3 which don't sit too well with us) we think you should know about.

Today we've zoomed in on a single data point to better understand the nature of Jiangsu Sidike New Materials Science & Technology's 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. 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.

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.