Nisshin OilliO GroupLtd's (TSE:2602) Profits Appear To Have Quality Issues

The Nisshin OilliO Group,Ltd. (TSE:2602) just released a solid earnings report, and the stock displayed some strength. While the profit numbers were good, our analysis has found some concerning factors that shareholders should be aware of.

See our latest analysis for Nisshin OilliO GroupLtd

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Nisshin OilliO GroupLtd's profit received a boost of JP¥2.9b 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. If Nisshin OilliO GroupLtd doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current 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 Nisshin OilliO GroupLtd's Profit Performance

Arguably, Nisshin OilliO GroupLtd's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Nisshin OilliO GroupLtd's statutory profits are better than its underlying earnings power. 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 Nisshin OilliO GroupLtd at this point in time. Every company has risks, and we've spotted 1 warning sign for Nisshin OilliO GroupLtd you should know about.

This note has only looked at a single factor that sheds light on the nature of Nisshin OilliO GroupLtd's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. Some people consider a high return on equity to be a good sign of a quality business. While it might take a little research on your behalf, you may find this free collection of companies boasting high return on equity, or this list of stocks with significant insider holdings to be useful.

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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.