Sun Messe's (TSE:7883) Shareholders May Want To Dig Deeper Than Statutory Profit

The recent earnings posted by Sun Messe Co., Ltd. (TSE:7883) were solid, but the stock didn't move as much as we expected. We believe that shareholders have noticed some concerning factors beyond the statutory profit numbers.

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The Impact Of Unusual Items On Profit

For anyone who wants to understand Sun Messe's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from JP¥32m worth of unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. And that's as you'd expect, given these boosts are described as 'unusual'. If Sun Messe 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 Sun Messe.

Our Take On Sun Messe's Profit Performance

Arguably, Sun Messe's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Sun Messe's true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 28% 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. For example - Sun Messe has 1 warning sign we think you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of Sun Messe's profit. But there are plenty of other ways to inform your opinion of a company. 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. While it might take a little research on your behalf, you may find this free collection of companies boasting high return on equity, or this list of stocks with significant insider holdings to be useful.

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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.