Tsubakimoto Chain's (TSE:6371) Earnings Are Of Questionable Quality

Tsubakimoto Chain Co. (TSE:6371) announced strong profits, but the stock was stagnant. We did some digging, and we found some concerning factors in the details.

Check out our latest analysis for Tsubakimoto Chain

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Tsubakimoto Chain's profit received a boost of JP¥4.8b in unusual items, over the last year. 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. And that's as you'd expect, given these boosts are described as 'unusual'. If Tsubakimoto Chain 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 Tsubakimoto Chain's Profit Performance

Arguably, Tsubakimoto Chain's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Tsubakimoto Chain's true underlying earnings power is actually less than its statutory profit. But on the bright side, its earnings per share have grown at an extremely impressive rate 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. So while earnings quality is important, it's equally important to consider the risks facing Tsubakimoto Chain at this point in time. Case in point: We've spotted 1 warning sign for Tsubakimoto Chain you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of Tsubakimoto Chain'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. 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.