Southern Publishing and MediaLtd's (SHSE:601900) Solid Earnings May Rest On Weak Foundations

Following the solid earnings report from Southern Publishing and Media Co.,Ltd. (SHSE:601900), the market responded by bidding up the stock price. However, we think that shareholders should be cautious as we found some worrying factors underlying the profit.

Check out our latest analysis for Southern Publishing and MediaLtd

How Do Unusual Items Influence Profit?

For anyone who wants to understand Southern Publishing and MediaLtd's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥91m 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. And that's as you'd expect, given these boosts are described as 'unusual'. If Southern Publishing and MediaLtd doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

Our Take On Southern Publishing and MediaLtd's Profit Performance

We'd posit that Southern Publishing and MediaLtd's statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Therefore, it seems possible to us that Southern Publishing and MediaLtd's true underlying earnings power is actually less than its statutory profit. Nonetheless, it's still worth noting that its earnings per share have grown at 52% over the last three years. 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. Case in point: We've spotted 2 warning signs for Southern Publishing and MediaLtd you should be mindful of and 1 of them is a bit unpleasant.

This note has only looked at a single factor that sheds light on the nature of Southern Publishing and MediaLtd'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.