Investors Shouldn't Be Too Comfortable With Kycom Holdings' (TSE:9685) Earnings

Kycom Holdings Co., Ltd.'s (TSE:9685) robust earnings report didn't manage to move the market for its stock. We did some digging, and we found some concerning factors in the details.

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How Do Unusual Items Influence Profit?

To properly understand Kycom Holdings' profit results, we need to consider the JP¥48m 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 analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that's exactly what the accounting terminology implies. 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 Kycom Holdings.

Our Take On Kycom Holdings' Profit Performance

We'd posit that Kycom Holdings' 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 Kycom Holdings' statutory profits are better than its underlying earnings power. But at least holders can take some solace from the 33% per annum growth in EPS for the last three. 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 want to do dive deeper into Kycom Holdings, you'd also look into what risks it is currently facing. At Simply Wall St, we found 1 warning sign for Kycom Holdings and we think they deserve your attention.

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