Cosmo Energy Holdings' (TSE:5021) Soft Earnings Don't Show The Whole Picture

The market was pleased with the recent earnings report from Cosmo Energy Holdings Co., Ltd. (TSE:5021), despite the profit numbers being soft. However, we think the company is showing some signs that things are more promising than they seem.

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The Impact Of Unusual Items On Profit

For anyone who wants to understand Cosmo Energy Holdings' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by JP¥20b due to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's hardly a surprise given these line items are considered unusual. Assuming those unusual expenses don't come up again, we'd therefore expect Cosmo Energy Holdings to produce a higher profit next year, all else being equal.

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

Our Take On Cosmo Energy Holdings' Profit Performance

Because unusual items detracted from Cosmo Energy Holdings' earnings over the last year, you could argue that we can expect an improved result in the current quarter. Because of this, we think Cosmo Energy Holdings' earnings potential is at least as good as it seems, and maybe even better! And on top of that, its earnings per share increased by 27% 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. So while earnings quality is important, it's equally important to consider the risks facing Cosmo Energy Holdings at this point in time. For example, we've discovered 2 warning signs that you should run your eye over to get a better picture of Cosmo Energy Holdings.

Today we've zoomed in on a single data point to better understand the nature of Cosmo Energy Holdings' 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.