Yantai Dongcheng Pharmaceutical GroupLtd's (SZSE:002675) Problems Go Beyond Weak Profit

Yantai Dongcheng Pharmaceutical Group Co.,Ltd.'s (SZSE:002675) stock showed strength, with investors undeterred by its weak earnings report. While shareholders may be willing to overlook soft profit numbers, we believe that they should also be taking into account some other factors which may be cause for concern.

Check out our latest analysis for Yantai Dongcheng Pharmaceutical GroupLtd

How Do Unusual Items Influence Profit?

To properly understand Yantai Dongcheng Pharmaceutical GroupLtd's profit results, we need to consider the CN¥38m gain attributed to 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'. 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).

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 Yantai Dongcheng Pharmaceutical GroupLtd's Profit Performance

Arguably, Yantai Dongcheng Pharmaceutical GroupLtd's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Yantai Dongcheng Pharmaceutical GroupLtd's statutory profits are better than its underlying earnings power. In further bad news, its earnings per share decreased in the last year. 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. 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 1 warning sign for Yantai Dongcheng Pharmaceutical GroupLtd and you'll want to know about this.

Today we've zoomed in on a single data point to better understand the nature of Yantai Dongcheng Pharmaceutical GroupLtd'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 that insiders are buying.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.