Mitsui DM Sugar Holdings' (TSE:2109) Problems Go Beyond Weak Profit

Mitsui DM Sugar Holdings Co., Ltd.'s (TSE:2109) recent weak earnings report didn't cause a big stock movement. We think that investors are worried about some weaknesses underlying the earnings.

See our latest analysis for Mitsui DM Sugar Holdings

The Impact Of Unusual Items On Profit

For anyone who wants to understand Mitsui DM Sugar Holdings' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from JP¥810m worth of unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's as you'd expect, given these boosts are described as 'unusual'. 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 Mitsui DM Sugar Holdings.

Our Take On Mitsui DM Sugar Holdings' Profit Performance

Arguably, Mitsui DM Sugar Holdings' statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Mitsui DM Sugar Holdings' true underlying earnings power is actually less than its statutory profit. But the good news is that its EPS growth over the last three years has been very impressive. 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 Mitsui DM Sugar Holdings at this point in time. In terms of investment risks, we've identified 2 warning signs with Mitsui DM Sugar Holdings, 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 Mitsui DM Sugar Holdings' 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.