We Think Fujita Engineering's (TSE:1770) Robust Earnings Are Conservative

Even though Fujita Engineering Co., Ltd.'s (TSE:1770) recent earnings release was robust, the market didn't seem to notice. Investors are probably missing some underlying factors which are encouraging for the future of the company.

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The Impact Of Unusual Items On Profit

For anyone who wants to understand Fujita Engineering's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by JP¥387m due to unusual items. 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. If Fujita Engineering doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

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

Our Take On Fujita Engineering's Profit Performance

Unusual items (expenses) detracted from Fujita Engineering's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Fujita Engineering's statutory profit actually understates its earnings potential! And on top of that, its earnings per share have grown at 30% per year over the last three years. 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. For example - Fujita Engineering has 1 warning sign we think you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of Fujita Engineering's profit. But there are plenty of other ways to inform your opinion of a company. 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 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.