Why Cosmo Energy Holdings' (TSE:5021) Earnings Are Better Than They Seem

The market seemed underwhelmed by the solid earnings posted by Cosmo Energy Holdings Co., Ltd. (TSE:5021) recently. Our analysis suggests that there are some reasons for hope that investors should be aware of.

View our latest analysis for Cosmo Energy Holdings

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Cosmo Energy Holdings' profit was reduced by JP¥19b, due to unusual items, over the last year. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. 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. If Cosmo Energy Holdings doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

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! Furthermore, it has done a great job growing EPS over 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. When we did our research, we found 2 warning signs for Cosmo Energy Holdings (1 doesn't sit too well with us!) that we believe deserve your full attention.

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. Some people consider a high return on equity to be a good sign of a quality business. 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.