Guangdong Lifestrong Pharmacy's (SZSE:301111) Problems Go Beyond Weak Profit

The subdued market reaction suggests that Guangdong Lifestrong Pharmacy Co., Ltd.'s (SZSE:301111) recent earnings didn't contain any surprises. However, we believe that investors should be aware of some underlying factors which may be of concern.

View our latest analysis for Guangdong Lifestrong Pharmacy

How Do Unusual Items Influence Profit?

For anyone who wants to understand Guangdong Lifestrong Pharmacy'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. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. And that's as you'd expect, given these boosts are described as 'unusual'. If Guangdong Lifestrong Pharmacy doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Guangdong Lifestrong Pharmacy.

Our Take On Guangdong Lifestrong Pharmacy's Profit Performance

Arguably, Guangdong Lifestrong Pharmacy's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Guangdong Lifestrong Pharmacy's statutory profits are better than its underlying earnings power. In further bad news, its earnings per share decreased in the last year. 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. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. For example, Guangdong Lifestrong Pharmacy has 2 warning signs (and 1 which doesn't sit too well with us) we think you should know about.

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

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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.