Kaji Technology's (TSE:6391) Sluggish Earnings Might Be Just The Beginning Of Its Problems

The subdued market reaction suggests that Kaji Technology Corporation's (TSE:6391) recent earnings didn't contain any surprises. Our analysis suggests that along with soft profit numbers, investors should be aware of some other underlying weaknesses in the numbers.

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The Impact Of Unusual Items On Profit

To properly understand Kaji Technology's profit results, we need to consider the JP¥36m gain attributed to unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. 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 Kaji Technology 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 Kaji Technology.

Our Take On Kaji Technology's Profit Performance

Arguably, Kaji Technology's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Kaji Technology'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. 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 want to do dive deeper into Kaji Technology, you'd also look into what risks it is currently facing. In terms of investment risks, we've identified 1 warning sign with Kaji Technology, 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 Kaji Technology'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. 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.