Sankyo Seiko's (TSE:8018) Problems Go Beyond Weak Profit

Investors were disappointed by Sankyo Seiko Co., Ltd.'s (TSE:8018 ) latest earnings release. Our analysis has found some reasons to be concerned, beyond the weak headline numbers.

We've discovered 1 warning sign about Sankyo Seiko. View them for free.

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Sankyo Seiko's profit received a boost of JP¥238m 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 analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. Which is hardly surprising, given the name. 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 Sankyo Seiko.

Our Take On Sankyo Seiko's Profit Performance

We'd posit that Sankyo Seiko's 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 Sankyo Seiko's statutory profits are better than its underlying earnings power. Nonetheless, it's still worth noting that its earnings per share have grown at 9.9% over the last three years. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. While conducting our analysis, we found that Sankyo Seiko has 1 warning sign and it would be unwise to ignore this.

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