Nippon Pallet Pool's (TSE:4690) Weak Earnings May Only Reveal A Part Of The Whole Picture

Nippon Pallet Pool Co., Ltd.'s (TSE:4690) recent weak earnings report didn't cause a big stock movement. However, we believe that investors should be aware of some underlying factors which may be of concern.

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The Impact Of Unusual Items On Profit

For anyone who wants to understand Nippon Pallet Pool's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from JP¥40m worth of unusual items. 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 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. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).

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

Our Take On Nippon Pallet Pool's Profit Performance

Arguably, Nippon Pallet Pool's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Nippon Pallet Pool's true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 15% per annum growth in EPS for the last three. 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 Nippon Pallet Pool as a business, it's important to be aware of any risks it's facing. Case in point: We've spotted 3 warning signs for Nippon Pallet Pool you should be mindful of and 1 of these makes us a bit uncomfortable.

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