Stock Analysis

Some May Be Optimistic About China Shengmu Organic Milk's (HKG:1432) Earnings

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Shareholders appeared unconcerned with China Shengmu Organic Milk Limited's (HKG:1432) lackluster earnings report last week. We think that the softer headline numbers might be getting counterbalanced by some positive underlying factors.

See our latest analysis for China Shengmu Organic Milk

SEHK:1432 Earnings and Revenue History April 29th 2024

How Do Unusual Items Influence Profit?

For anyone who wants to understand China Shengmu Organic Milk's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by CN¥711m due to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's hardly a surprise given these line items are considered unusual. In the twelve months to December 2023, China Shengmu Organic Milk had a big unusual items expense. As a result, we can surmise that the unusual items made its statutory profit significantly weaker than it would otherwise be.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of China Shengmu Organic Milk.

Our Take On China Shengmu Organic Milk's Profit Performance

As we mentioned previously, the China Shengmu Organic Milk's profit was hampered by unusual items in the last year. Because of this, we think China Shengmu Organic Milk's underlying earnings potential is as good as, or possibly even better, than the statutory profit makes it seem! On the other hand, its EPS actually shrunk in the last twelve months. 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 China Shengmu Organic Milk as a business, it's important to be aware of any risks it's facing. Case in point: We've spotted 2 warning signs for China Shengmu Organic Milk you should be aware of.

This note has only looked at a single factor that sheds light on the nature of China Shengmu Organic Milk'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. 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.

Valuation is complex, but we're helping make it simple.

Find out whether China Shengmu Organic Milk is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.