We Think You Can Look Beyond Guangdong Zhongsheng Pharmaceutical's (SZSE:002317) Lackluster Earnings

Guangdong Zhongsheng Pharmaceutical Co., Ltd.'s (SZSE:002317) stock was strong despite it releasing a soft earnings report last week. Our analysis suggests that investors may have noticed some promising signs beyond the statutory profit figures.

See our latest analysis for Guangdong Zhongsheng Pharmaceutical

The Impact Of Unusual Items On Profit

To properly understand Guangdong Zhongsheng Pharmaceutical's profit results, we need to consider the CN¥106m expense attributed to unusual items. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And, after all, that's exactly what the accounting terminology implies. If Guangdong Zhongsheng Pharmaceutical doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming 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 Guangdong Zhongsheng Pharmaceutical's Profit Performance

Unusual items (expenses) detracted from Guangdong Zhongsheng Pharmaceutical's earnings over the last year, but we might see an improvement next year. Because of this, we think Guangdong Zhongsheng Pharmaceutical's earnings potential is at least as good as it seems, and maybe even better! Unfortunately, though, its earnings per share actually fell back over the last year. 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. So while earnings quality is important, it's equally important to consider the risks facing Guangdong Zhongsheng Pharmaceutical at this point in time. For example, we've found that Guangdong Zhongsheng Pharmaceutical has 4 warning signs (1 is potentially serious!) that deserve your attention before going any further with your analysis.

This note has only looked at a single factor that sheds light on the nature of Guangdong Zhongsheng Pharmaceutical'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. 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.