There May Be Underlying Issues With The Quality Of Sakurai's (TSE:7255) Earnings

Despite announcing strong earnings, Sakurai Ltd.'s (TSE:7255) stock was sluggish. Our analysis uncovered some concerning factors that we believe the market might be paying attention to.

View our latest analysis for Sakurai

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Sakurai's profit received a boost of JP¥436m 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. We can see that Sakurai's positive unusual items were quite significant relative to its profit in the year to March 2024. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Sakurai.

Our Take On Sakurai's Profit Performance

As we discussed above, we think the significant positive unusual item makes Sakurai's earnings a poor guide to its underlying profitability. As a result, we think it may well be the case that Sakurai's underlying earnings power is lower than its statutory profit. On the bright side, the company showed enough improvement to book a profit this year, after losing money 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. If you want to do dive deeper into Sakurai, you'd also look into what risks it is currently facing. At Simply Wall St, we found 3 warning signs for Sakurai and we think they deserve your attention.

This note has only looked at a single factor that sheds light on the nature of Sakurai'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.