There May Be Underlying Issues With The Quality Of NISSO PRONITY's (TSE:3440) Earnings

NISSO PRONITY Co., Ltd. (TSE:3440) just reported some strong earnings, and the market reacted accordingly with a healthy uplift in the share price. However, we think that shareholders may be missing some concerning details in the numbers.

Our free stock report includes 2 warning signs investors should be aware of before investing in NISSO PRONITY. Read for free now.

The Impact Of Unusual Items On Profit

For anyone who wants to understand NISSO PRONITY's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from JP¥183m 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. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. Which is hardly surprising, given the name. If NISSO PRONITY doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

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

Our Take On NISSO PRONITY's Profit Performance

We'd posit that NISSO PRONITY's statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Because of this, we think that it may be that NISSO PRONITY's statutory profits are better than its underlying earnings power. But the good news is that its EPS growth over the last three years has been very impressive. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. So while earnings quality is important, it's equally important to consider the risks facing NISSO PRONITY at this point in time. You'd be interested to know, that we found 2 warning signs for NISSO PRONITY and you'll want to know about them.

Today we've zoomed in on a single data point to better understand the nature of NISSO PRONITY's profit. But there are plenty of other ways to inform your opinion of a company. Some people consider a high return on equity to be a good sign of a quality business. While it might take a little research on your behalf, you may find this free collection of companies boasting high return on equity, or this list of stocks with significant insider holdings to be useful.

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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.