Solid Earnings May Not Tell The Whole Story For AZUMA HOUSE (TSE:3293)

AZUMA HOUSE Co., Ltd.'s (TSE:3293) healthy profit numbers didn't contain any surprises for investors. However the statutory profit number doesn't tell the whole story, and we have found some factors which might be of concern to shareholders.

View our latest analysis for AZUMA HOUSE

How Do Unusual Items Influence Profit?

Importantly, our data indicates that AZUMA HOUSE's profit received a boost of JP¥227m in unusual items, over the last year. 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. If AZUMA HOUSE 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 AZUMA HOUSE.

Our Take On AZUMA HOUSE's Profit Performance

Arguably, AZUMA HOUSE's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that AZUMA HOUSE's true underlying earnings power is actually less than its statutory profit. The good news is that, its earnings per share increased by 9.8% in the last year. 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. Every company has risks, and we've spotted 5 warning signs for AZUMA HOUSE (of which 2 make us uncomfortable!) you should know about.

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