Impressive Earnings May Not Tell The Whole Story For Sato Foods Industries (TSE:2814)

Sato Foods Industries Co., Ltd.'s (TSE:2814) robust earnings report didn't manage to move the market for its stock. We did some digging, and we found some concerning factors in the details.

View our latest analysis for Sato Foods Industries

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Sato Foods Industries' profit received a boost of JP¥216m in unusual items, over the last year. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. And, after all, that's exactly what the accounting terminology implies. We can see that Sato Foods Industries' positive unusual items were quite significant relative to its profit in the year to September 2024. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

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

Our Take On Sato Foods Industries' Profit Performance

As we discussed above, we think the significant positive unusual item makes Sato Foods Industries' earnings a poor guide to its underlying profitability. As a result, we think it may well be the case that Sato Foods Industries' underlying earnings power is lower than its statutory profit. The silver lining is that its EPS growth over the last year has been really wonderful, even if it's not a perfect measure. 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. If you'd like to know more about Sato Foods Industries as a business, it's important to be aware of any risks it's facing. To that end, you should learn about the 3 warning signs we've spotted with Sato Foods Industries (including 1 which shouldn't be ignored).

This note has only looked at a single factor that sheds light on the nature of Sato Foods Industries' 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.