We Think That There Are Issues Underlying Sunshine Guojian Pharmaceutical (Shanghai)'s (SHSE:688336) Earnings

Last week's profit announcement from Sunshine Guojian Pharmaceutical (Shanghai) Co., Ltd (SHSE:688336) was underwhelming for investors, despite headline numbers being robust. We did some digging and found some worrying underlying problems.

Check out our latest analysis for Sunshine Guojian Pharmaceutical (Shanghai)

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Sunshine Guojian Pharmaceutical (Shanghai)'s profit received a boost of CN¥97m in unusual items, over the last year. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. And, after all, that's exactly what the accounting terminology implies. We can see that Sunshine Guojian Pharmaceutical (Shanghai)'s positive unusual items were quite significant relative to its profit in the year to December 2023. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

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 Sunshine Guojian Pharmaceutical (Shanghai)'s Profit Performance

As we discussed above, we think the significant positive unusual item makes Sunshine Guojian Pharmaceutical (Shanghai)'s earnings a poor guide to its underlying profitability. For this reason, we think that Sunshine Guojian Pharmaceutical (Shanghai)'s statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. The silver lining is that its EPS growth over the last year has been really wonderful, even if it's not a perfect measure. 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. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. Our analysis shows 2 warning signs for Sunshine Guojian Pharmaceutical (Shanghai) (1 is concerning!) and we strongly recommend you look at these before investing.

Today we've zoomed in on a single data point to better understand the nature of Sunshine Guojian Pharmaceutical (Shanghai)'s 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 that insiders are buying 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.