Earnings Troubles May Signal Larger Issues for SUMINOE (TSE:3501) Shareholders

A lackluster earnings announcement from SUMINOE Co., Ltd. (TSE:3501) last week didn't sink the stock price. However, we believe that investors should be aware of some underlying factors which may be of concern.

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How Do Unusual Items Influence Profit?

Importantly, our data indicates that SUMINOE's profit received a boost of JP¥471m in unusual items, over the last year. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. 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. If SUMINOE 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 SUMINOE.

Our Take On SUMINOE's Profit Performance

Arguably, SUMINOE's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that SUMINOE's statutory profits are better than its underlying earnings power. But the good news is that its EPS growth over the last three years has been very impressive. 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 want to do dive deeper into SUMINOE, you'd also look into what risks it is currently facing. You'd be interested to know, that we found 2 warning signs for SUMINOE and you'll want to know about these.

Today we've zoomed in on a single data point to better understand the nature of SUMINOE'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. 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.