Is There More To The Story Than Shirble Department Store Holdings (China)'s (HKG:312) Earnings Growth?

It might be old fashioned, but we really like to invest in companies that make a profit, each and every year. Having said that, sometimes statutory profit levels are not a good guide to ongoing profitability, because some short term one-off factor has impacted profit levels. This article will consider whether Shirble Department Store Holdings (China)'s (HKG:312) statutory profits are a good guide to its underlying earnings.

While Shirble Department Store Holdings (China) was able to generate revenue of CN¥665.5m in the last twelve months, we think its profit result of CN¥140.7m was more important. As depicted below, while its revenue may have fallen over the last few years, its profit actually improved.

See our latest analysis for Shirble Department Store Holdings (China)

Importantly, statutory profits are not always the best tool for understanding a company's true earnings power, so it's well worth examining profits in a little more detail. This article will focus on the impact unusual items have had on Shirble Department Store Holdings (China)'s statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Shirble Department Store Holdings (China).

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Shirble Department Store Holdings (China)'s profit received a boost of CN¥98m in unusual items, over the last year. 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. Which is hardly surprising, given the name. Shirble Department Store Holdings (China) had a rather significant contribution from unusual items relative to its profit to June 2020. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

Our Take On Shirble Department Store Holdings (China)'s Profit Performance

As previously mentioned, Shirble Department Store Holdings (China)'s large boost from unusual items won't be there indefinitely, so its statutory earnings are probably a poor guide to its underlying profitability. As a result, we think it may well be the case that Shirble Department Store Holdings (China)'s underlying earnings power is lower than its statutory profit. But the good news is that its EPS growth over the last three years has been very impressive. 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. For example - Shirble Department Store Holdings (China) has 3 warning signs we think you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of Shirble Department Store Holdings (China)'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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