Weak Statutory Earnings May Not Tell The Whole Story For Guangdong Jiaying Pharmaceutical (SZSE:002198)

A lackluster earnings announcement from Guangdong Jiaying Pharmaceutical Co., Ltd (SZSE:002198) last week didn't sink the stock price. We think that investors are worried about some weaknesses underlying the earnings.

Check out our latest analysis for Guangdong Jiaying Pharmaceutical

The Impact Of Unusual Items On Profit

For anyone who wants to understand Guangdong Jiaying Pharmaceutical's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥2.0m 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 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 that's as you'd expect, given these boosts are described as 'unusual'. 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 Guangdong Jiaying Pharmaceutical.

Our Take On Guangdong Jiaying Pharmaceutical's Profit Performance

Arguably, Guangdong Jiaying Pharmaceutical's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Guangdong Jiaying Pharmaceutical's statutory profits are better than its underlying earnings power. Sadly, its EPS was down over the last twelve months. 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. You'd be interested to know, that we found 2 warning signs for Guangdong Jiaying Pharmaceutical and you'll want to know about these.

This note has only looked at a single factor that sheds light on the nature of Guangdong Jiaying Pharmaceutical'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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.

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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.