We Think Yoshitake's (TSE:6488) Robust Earnings Are Conservative

The subdued stock price reaction suggests that Yoshitake Inc.'s (TSE:6488) strong earnings didn't offer any surprises. Investors are probably missing some underlying factors which are encouraging for the future of the company.

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How Do Unusual Items Influence Profit?

To properly understand Yoshitake's profit results, we need to consider the JP¥182m expense attributed to unusual items. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that's exactly what the accounting terminology implies. If Yoshitake doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

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

Our Take On Yoshitake's Profit Performance

Because unusual items detracted from Yoshitake's earnings over the last year, you could argue that we can expect an improved result in the current quarter. Based on this observation, we consider it likely that Yoshitake's statutory profit actually understates its earnings potential! And on top of that, its earnings per share increased by 18% in the last year. 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. Every company has risks, and we've spotted 2 warning signs for Yoshitake you should know about.

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