es Networks' (TSE:5867) Earnings Are Weaker Than They Seem

Despite posting some strong earnings, the market for es Networks Co., Ltd.'s (TSE:5867) stock hasn't moved much. Our analysis suggests that this might be because shareholders have noticed some concerning underlying factors.

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How Do Unusual Items Influence Profit?

To properly understand es Networks' profit results, we need to consider the JP¥114m gain attributed to unusual items. 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 crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. Which is hardly surprising, given the name. We can see that es Networks' positive unusual items were quite significant relative to its profit in the year to June 2025. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

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

Our Take On es Networks' Profit Performance

As previously mentioned, es Networks' large boost from unusual items won't be there indefinitely, so its statutory earnings are probably a poor guide to its underlying profitability. As a result, we think it may well be the case that es Networks' underlying earnings power is lower than its statutory profit. But the good news is that its EPS growth over the last three years has been very impressive. 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. So while earnings quality is important, it's equally important to consider the risks facing es Networks at this point in time. At Simply Wall St, we found 2 warning signs for es Networks and we think they deserve your attention.

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