Zhejiang Shibao (HKG:1057) Posted Healthy Earnings But There Are Some Other Factors To Be Aware Of

Zhejiang Shibao Company Limited (HKG:1057) announced strong profits, but the stock was stagnant. Our analysis suggests that shareholders have noticed something concerning in the numbers.

See our latest analysis for Zhejiang Shibao

How Do Unusual Items Influence Profit?

To properly understand Zhejiang Shibao's profit results, we need to consider the CN¥17m gain attributed to 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. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. Which is hardly surprising, given the name. We can see that Zhejiang Shibao's positive unusual items were quite significant relative to its profit in the year to December 2020. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Zhejiang Shibao.

Our Take On Zhejiang Shibao's Profit Performance

As we discussed above, we think the significant positive unusual item makes Zhejiang Shibao's earnings a poor guide to its underlying profitability. For this reason, we think that Zhejiang Shibao's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. The good news is that it earned a profit in the last twelve months, despite its previous loss. 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 Zhejiang Shibao as a business, it's important to be aware of any risks it's facing. Be aware that Zhejiang Shibao is showing 3 warning signs in our investment analysis and 1 of those is concerning...

Today we've zoomed in on a single data point to better understand the nature of Zhejiang Shibao'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 that insiders are buying.

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This article by Simply Wall St is general in nature. 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.
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