Tus-Pharmaceutical Group's (SZSE:000590) Solid Profits Have Weak Fundamentals

Unsurprisingly, Tus-Pharmaceutical Group Co., Ltd.'s (SZSE:000590) stock price was strong on the back of its healthy earnings report. However, our analysis suggests that shareholders may be missing some factors that indicate the earnings result was not as good as it looked.

Check out our latest analysis for Tus-Pharmaceutical Group

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Tus-Pharmaceutical Group's profit received a boost of CN¥25m in unusual items, over the last year. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. And, after all, that's exactly what the accounting terminology implies. Tus-Pharmaceutical Group had a rather significant contribution from unusual items relative to its profit to December 2023. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Tus-Pharmaceutical Group.

Our Take On Tus-Pharmaceutical Group's Profit Performance

As we discussed above, we think the significant positive unusual item makes Tus-Pharmaceutical Group's earnings a poor guide to its underlying profitability. For this reason, we think that Tus-Pharmaceutical Group's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. Nonetheless, it's still worth noting that its earnings per share have grown at 11% over the last three years. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. At Simply Wall St, we found 1 warning sign for Tus-Pharmaceutical Group and we think they deserve your attention.

This note has only looked at a single factor that sheds light on the nature of Tus-Pharmaceutical Group'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. 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.