Medicalsystem Biotechnology's (SZSE:300439) Solid Earnings May Rest On Weak Foundations

The recent earnings posted by Medicalsystem Biotechnology Co., Ltd (SZSE:300439) were solid, but the stock didn't move as much as we expected. We believe that shareholders have noticed some concerning factors beyond the statutory profit numbers.

View our latest analysis for Medicalsystem Biotechnology

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Medicalsystem Biotechnology's profit received a boost of CN¥42m 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. 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. Which is hardly surprising, given the name. 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 Medicalsystem Biotechnology.

Our Take On Medicalsystem Biotechnology's Profit Performance

Arguably, Medicalsystem Biotechnology's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Medicalsystem Biotechnology's true underlying earnings power is actually less than its statutory profit. Nonetheless, it's still worth noting that its earnings per share have grown at 38% 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. If you'd like to know more about Medicalsystem Biotechnology as a business, it's important to be aware of any risks it's facing. In terms of investment risks, we've identified 1 warning sign with Medicalsystem Biotechnology, and understanding this should be part of your investment process.

Today we've zoomed in on a single data point to better understand the nature of Medicalsystem Biotechnology'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. 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.