Honyaku Center's (TSE:2483) Profits May Not Reveal Underlying Issues

The stock price didn't jump after Honyaku Center Inc. (TSE:2483) posted decent earnings last week. We did some digging and believe investors may be worried about some underlying factors in the report.

Our free stock report includes 1 warning sign investors should be aware of before investing in Honyaku Center. Read for free now.

How Do Unusual Items Influence Profit?

To properly understand Honyaku Center's profit results, we need to consider the JP¥181m gain attributed to unusual items. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. 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).

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

Our Take On Honyaku Center's Profit Performance

Arguably, Honyaku Center's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Honyaku Center's statutory profits are better than its underlying earnings power. But at least holders can take some solace from the 25% 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'd like to know more about Honyaku Center as a business, it's important to be aware of any risks it's facing. While conducting our analysis, we found that Honyaku Center has 1 warning sign and it would be unwise to ignore it.

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