Stock Analysis

ShanXi C&Y Pharmaceutical Group (SZSE:300254) Strong Profits May Be Masking Some Underlying Issues

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ShanXi C&Y Pharmaceutical Group Co., Ltd.'s (SZSE:300254 ) stock didn't jump after it announced some healthy earnings. Our analysis showed that there are some concerning factors in the earnings that investors may be cautious of.

See our latest analysis for ShanXi C&Y Pharmaceutical Group

SZSE:300254 Earnings and Revenue History March 25th 2024

The Impact Of Unusual Items On Profit

For anyone who wants to understand ShanXi C&Y Pharmaceutical Group's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥36m 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 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'. ShanXi C&Y Pharmaceutical Group had a rather significant contribution from unusual items relative to its profit 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.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of ShanXi C&Y Pharmaceutical Group.

Our Take On ShanXi C&Y Pharmaceutical Group's Profit Performance

As we discussed above, we think the significant positive unusual item makes ShanXi C&Y Pharmaceutical Group's earnings a poor guide to its underlying profitability. For this reason, we think that ShanXi C&Y 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. On the bright side, the company showed enough improvement to book a profit this year, after losing money 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. For instance, we've identified 2 warning signs for ShanXi C&Y Pharmaceutical Group (1 is potentially serious) you should be familiar with.

This note has only looked at a single factor that sheds light on the nature of ShanXi C&Y Pharmaceutical Group's profit. But there are plenty of other ways to inform your opinion of a company. 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.

Valuation is complex, but we're helping make it simple.

Find out whether ShanXi C&Y Pharmaceutical GroupLTD is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.