Asahi Diamond Industrial's (TSE:6140) Anemic Earnings Might Be Worse Than You Think

Investors were disappointed by Asahi Diamond Industrial Co., Ltd.'s (TSE:6140 ) latest earnings release. We did some analysis, and found that there are some reasons to be cautious about the headline numbers.

Check out our latest analysis for Asahi Diamond Industrial

How Do Unusual Items Influence Profit?

For anyone who wants to understand Asahi Diamond Industrial's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from JP¥275m 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 analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. Which is hardly surprising, given the name. If Asahi Diamond Industrial 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 Asahi Diamond Industrial's Profit Performance

Arguably, Asahi Diamond Industrial's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Asahi Diamond Industrial's statutory profits are better than its underlying earnings power. But at least holders can take some solace from the 37% per annum growth in EPS for the last three. 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. In terms of investment risks, we've identified 1 warning sign with Asahi Diamond Industrial, and understanding it should be part of your investment process.

Today we've zoomed in on a single data point to better understand the nature of Asahi Diamond Industrial'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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.