Nippon Thompson's (TSE:6480) Sluggish Earnings Might Be Just The Beginning Of Its Problems

Last week's earnings announcement from Nippon Thompson Co., Ltd. (TSE:6480) was disappointing to investors, with a sluggish profit figure. Our analysis has found some reasons to be concerned, beyond the weak headline numbers.

See our latest analysis for Nippon Thompson

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Nippon Thompson's profit received a boost of JP¥496m in unusual items, over the last year. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. And, after all, that's exactly what the accounting terminology implies. If Nippon Thompson 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 Nippon Thompson's Profit Performance

We'd posit that Nippon Thompson'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 Nippon Thompson's statutory profits are better than its underlying earnings power. But on the bright side, its earnings per share have grown at an extremely impressive rate over the last three years. 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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. At Simply Wall St, we found 2 warning signs for Nippon Thompson and we think they deserve your attention.

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