Investors Shouldn't Be Too Comfortable With Yamazen's (TSE:8051) Earnings

Yamazen Corporation's (TSE:8051) robust earnings report didn't manage to move the market for its stock. Our analysis suggests that this might be because shareholders have noticed some concerning underlying factors.

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The Impact Of Unusual Items On Profit

Importantly, our data indicates that Yamazen's profit received a boost of JP¥2.6b 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. Which is hardly surprising, given the name. 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).

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

Our Take On Yamazen's Profit Performance

Arguably, Yamazen's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Yamazen's true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 69% EPS growth in the last year. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. If you'd like to know more about Yamazen as a business, it's important to be aware of any risks it's facing. To help with this, we've discovered 3 warning signs (1 is a bit unpleasant!) that you ought to be aware of before buying any shares in Yamazen.

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