Daiichi Jitsugyo's (TSE:8059) Earnings Are Weaker Than They Seem

Daiichi Jitsugyo Co., Ltd. (TSE:8059) just reported some strong earnings, and the market reacted accordingly with a healthy uplift in the share price. We did some analysis and think that investors are missing some details hidden beneath the profit numbers.

Check out our latest analysis for Daiichi Jitsugyo

The Impact Of Unusual Items On Profit

To properly understand Daiichi Jitsugyo's profit results, we need to consider the JP¥951m 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. And that's as you'd expect, given these boosts are described as 'unusual'. If Daiichi Jitsugyo 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 Daiichi Jitsugyo.

Our Take On Daiichi Jitsugyo's Profit Performance

We'd posit that Daiichi Jitsugyo'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 Daiichi Jitsugyo'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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. For example, we've discovered 1 warning sign that you should run your eye over to get a better picture of Daiichi Jitsugyo.

This note has only looked at a single factor that sheds light on the nature of Daiichi Jitsugyo's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. For example, many people consider a high return on equity as an indication of favorable business economics, while others like to 'follow the money' and search out stocks that insiders are buying. 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.