Sanchuan Wisdom Technology (SZSE:300066) Strong Profits May Be Masking Some Underlying Issues

Sanchuan Wisdom Technology Co., Ltd.'s (SZSE:300066) robust recent earnings didn't do much to move the stock. However the statutory profit number doesn't tell the whole story, and we have found some factors which might be of concern to shareholders.

View our latest analysis for Sanchuan Wisdom Technology

How Do Unusual Items Influence Profit?

For anyone who wants to understand Sanchuan Wisdom Technology's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥35m 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'. If Sanchuan Wisdom Technology 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 Sanchuan Wisdom Technology.

Our Take On Sanchuan Wisdom Technology's Profit Performance

We'd posit that Sanchuan Wisdom Technology's statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Because of this, we think that it may be that Sanchuan Wisdom Technology's statutory profits are better than its underlying earnings power. Nonetheless, it's still worth noting that its earnings per share have grown at 12% over the last three years. 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. While conducting our analysis, we found that Sanchuan Wisdom Technology has 2 warning signs and it would be unwise to ignore them.

This note has only looked at a single factor that sheds light on the nature of Sanchuan Wisdom Technology's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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.

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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.