Mabuchi Motor's (TSE:6592) Earnings Are Of Questionable Quality

Mabuchi Motor Co., Ltd. (TSE:6592) announced strong profits, but the stock was stagnant. Our analysis suggests that this might be because shareholders have noticed some concerning underlying factors.

View our latest analysis for Mabuchi Motor

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Mabuchi Motor's profit received a boost of JP¥1.6b 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 analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's as you'd expect, given these boosts are described as 'unusual'. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).

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 Mabuchi Motor's Profit Performance

We'd posit that Mabuchi Motor'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 Mabuchi Motor's statutory profits are better than its underlying earnings power. But at least holders can take some solace from the 35% per annum growth in EPS for the last three. 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 Mabuchi Motor, you'd also look into what risks it is currently facing. For instance, we've identified 2 warning signs for Mabuchi Motor (1 is significant) you should be familiar with.

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