Weak Statutory Earnings May Not Tell The Whole Story For Sanjiang Shopping ClubLtd (SHSE:601116)

The market wasn’t impressed with the soft earnings from Sanjiang Shopping Club Co.,Ltd (SHSE:601116) recently. Our analysis has found some reasons to be concerned, beyond the weak headline numbers.

Check out our latest analysis for Sanjiang Shopping ClubLtd

How Do Unusual Items Influence Profit?

To properly understand Sanjiang Shopping ClubLtd’s profit results, we need to consider the CN¥13m gain attributed to unusual items. While it’s always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. We ran the numbers on most publicly listed companies worldwide, and it’s very common for unusual items to be once-off in nature. And, after all, that’s exactly what the accounting terminology implies. If Sanjiang Shopping ClubLtd 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 Sanjiang Shopping ClubLtd.

Our Take On Sanjiang Shopping ClubLtd’s Profit Performance

We’d posit that Sanjiang Shopping ClubLtd’s statutory earnings aren’t a clean read on ongoing productivity, due to the large unusual item. Therefore, it seems possible to us that Sanjiang Shopping ClubLtd’s true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 57% per annum growth in EPS for the last three. 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. With this in mind, we wouldn’t consider investing in a stock unless we had a thorough understanding of the risks. At Simply Wall St, we found 1 warning sign for Sanjiang Shopping ClubLtd and we think they deserve your attention.

Today we’ve zoomed in on a single data point to better understand the nature of Sanjiang Shopping ClubLtd’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. 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.