AKITA Drilling's (TSE:AKT.A) Earnings Are Weaker Than They Seem

AKITA Drilling Ltd. (TSE:AKT.A) just reported some strong earnings, and the market reacted accordingly with a healthy uplift in the share price. However, our analysis suggests that shareholders may be missing some factors that indicate the earnings result was not as good as it looked.

Our free stock report includes 1 warning sign investors should be aware of before investing in AKITA Drilling. Read for free now.

The Impact Of Unusual Items On Profit

For anyone who wants to understand AKITA Drilling's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CA$2.5m worth of 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. And, after all, that's exactly what the accounting terminology implies. 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 AKITA Drilling's Profit Performance

Arguably, AKITA Drilling's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that AKITA Drilling's statutory profits are better than its underlying earnings power. But at least holders can take some solace from the 62% EPS growth in the last year. 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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. While conducting our analysis, we found that AKITA Drilling has 1 warning sign and it would be unwise to ignore it.

Today we've zoomed in on a single data point to better understand the nature of AKITA Drilling'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. 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 with significant insider holdings to be useful.

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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.