Solid Earnings May Not Tell The Whole Story For Shanghai Join BuyLtd (SHSE:600838)

Shanghai Join Buy Co.,Ltd.'s (SHSE:600838) healthy profit numbers didn't contain any surprises for investors. However the statutory profit number doesn't tell the whole story, and we have found some factors which might be of concern to shareholders.

Check out our latest analysis for Shanghai Join BuyLtd

The Impact Of Unusual Items On Profit

To properly understand Shanghai Join BuyLtd's profit results, we need to consider the CN¥7.4m gain attributed to unusual items. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. 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. And, after all, that's exactly what the accounting terminology implies. If Shanghai Join BuyLtd 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 Shanghai Join BuyLtd.

Our Take On Shanghai Join BuyLtd's Profit Performance

Arguably, Shanghai Join BuyLtd's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Shanghai Join BuyLtd's true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 6.5% EPS growth 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 while earnings quality is important, it's equally important to consider the risks facing Shanghai Join BuyLtd at this point in time. For example, Shanghai Join BuyLtd has 2 warning signs (and 1 which is a bit unpleasant) we think you should know about.

Today we've zoomed in on a single data point to better understand the nature of Shanghai Join BuyLtd's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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.

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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.