Stock Analysis

We're Not Counting On Shoei YakuhinLtd (TYO:3537) To Sustain Its Statutory Profitability

TSE:3537
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Broadly speaking, profitable businesses are less risky than unprofitable ones. However, sometimes companies receive a one-off boost (or reduction) to their profit, and it's not always clear whether statutory profits are a good guide, going forward. Today we'll focus on whether this year's statutory profits are a good guide to understanding Shoei YakuhinLtd (TYO:3537).

We like the fact that Shoei YakuhinLtd made a profit of JP¥190.0m on its revenue of JP¥16.6b, in the last year. Below, you can see that both its revenue and its profit have fallen over the last three years.

View our latest analysis for Shoei YakuhinLtd

earnings-and-revenue-history
JASDAQ:3537 Earnings and Revenue History November 30th 2020

Importantly, statutory profits are not always the best tool for understanding a company's true earnings power, so it's well worth examining profits in a little more detail. This article will discuss how unusual items have impacted Shoei YakuhinLtd's most recent profit results. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Shoei YakuhinLtd.

How Do Unusual Items Influence Profit?

To properly understand Shoei YakuhinLtd's profit results, we need to consider the JP¥44m gain attributed to unusual items. 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. And that's as you'd expect, given these boosts are described as 'unusual'. Shoei YakuhinLtd had a rather significant contribution from unusual items relative to its profit to September 2020. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

Our Take On Shoei YakuhinLtd's Profit Performance

As we discussed above, we think the significant positive unusual item makes Shoei YakuhinLtd'searnings a poor guide to its underlying profitability. For this reason, we think that Shoei YakuhinLtd's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. In further bad news, its earnings per share decreased in 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. If you'd like to know more about Shoei YakuhinLtd as a business, it's important to be aware of any risks it's facing. To help with this, we've discovered 3 warning signs (1 can't be ignored!) that you ought to be aware of before buying any shares in Shoei YakuhinLtd.

Today we've zoomed in on a single data point to better understand the nature of Shoei YakuhinLtd's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. For example, many people consider a high return on equity as an indication of favorable business economics, while others like to 'follow the money' and search out stocks that insiders are buying. 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. 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.
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