Sumitomo DensetsuLtd's (TSE:1949) Solid Earnings May Rest On Weak Foundations

Sumitomo Densetsu Co.,Ltd.'s (TSE:1949) robust recent earnings didn't do much to move the stock. However the statutory profit number doesn't tell the whole story, and we have found some factors which might be of concern to shareholders.

See our latest analysis for Sumitomo DensetsuLtd

How Do Unusual Items Influence Profit?

For anyone who wants to understand Sumitomo DensetsuLtd's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from JP¥1.2b worth of 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. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. Which is hardly surprising, given the name. If Sumitomo DensetsuLtd doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

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 DensetsuLtd's Profit Performance

Arguably, Sumitomo DensetsuLtd's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Sumitomo DensetsuLtd's statutory profits are better than its underlying earnings power. Nonetheless, it's still worth noting that its earnings per share have grown at 26% over the last three years. 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'd like to know more about Sumitomo DensetsuLtd as a business, it's important to be aware of any risks it's facing. For example - Sumitomo DensetsuLtd has 1 warning sign we think you should be aware of.

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