Milkyway Chemical Supply Chain ServiceLtd's (SHSE:603713) Weak Earnings May Only Reveal A Part Of The Whole Picture

Last week's earnings announcement from Milkyway Chemical Supply Chain Service Co.,Ltd (SHSE:603713) was disappointing to investors, with a sluggish profit figure. We did some analysis, and found that there are some reasons to be cautious about the headline numbers.

View our latest analysis for Milkyway Chemical Supply Chain ServiceLtd

The Impact Of Unusual Items On Profit

For anyone who wants to understand Milkyway Chemical Supply Chain ServiceLtd's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥83m worth of unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. 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).

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

Our Take On Milkyway Chemical Supply Chain ServiceLtd's Profit Performance

Arguably, Milkyway Chemical Supply Chain ServiceLtd's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Milkyway Chemical Supply Chain ServiceLtd's statutory profits are better than its underlying earnings power. But at least holders can take some solace from the 41% per annum growth in EPS for the last three. 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. When we did our research, we found 2 warning signs for Milkyway Chemical Supply Chain ServiceLtd (1 shouldn't be ignored!) that we believe deserve your full attention.

Today we've zoomed in on a single data point to better understand the nature of Milkyway Chemical Supply Chain ServiceLtd'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.