Sumitomo Rubber Industries' (TSE:5110) Solid Earnings Are Supported By Other Strong Factors

Even though Sumitomo Rubber Industries, Ltd.'s (TSE:5110) recent earnings release was robust, the market didn't seem to notice. Our analysis suggests that investors might be missing some promising details.

See our latest analysis for Sumitomo Rubber Industries

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Sumitomo Rubber Industries' profit was reduced by JP¥13b, due to unusual items, over the last year. 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. Assuming those unusual expenses don't come up again, we'd therefore expect Sumitomo Rubber Industries to produce a higher profit next year, all else being equal.

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 Sumitomo Rubber Industries' Profit Performance

Unusual items (expenses) detracted from Sumitomo Rubber Industries' earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Sumitomo Rubber Industries' statutory profit actually understates its earnings potential! Furthermore, it has done a great job growing EPS over the last year. 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. Every company has risks, and we've spotted 1 warning sign for Sumitomo Rubber Industries you should know about.

Today we've zoomed in on a single data point to better understand the nature of Sumitomo Rubber Industries' 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 that insiders are buying.

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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.