SeigakushaLtd's (TSE:2179) Soft Earnings Don't Show The Whole Picture

The market for Seigakusha Co.,Ltd.'s (TSE:2179) shares didn't move much after it posted weak earnings recently. We did some digging, and we believe the earnings are stronger than they seem.

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The Impact Of Unusual Items On Profit

Importantly, our data indicates that SeigakushaLtd's profit was reduced by JP¥115m, due to unusual items, over the last year. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And that's hardly a surprise given these line items are considered unusual. If SeigakushaLtd doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

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

Our Take On SeigakushaLtd's Profit Performance

Unusual items (expenses) detracted from SeigakushaLtd's earnings over the last year, but we might see an improvement next year. Because of this, we think SeigakushaLtd's earnings potential is at least as good as it seems, and maybe even better! And the EPS is up 53% annually, 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. In terms of investment risks, we've identified 2 warning signs with SeigakushaLtd, and understanding them should be part of your investment process.

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