The subdued market reaction suggests that Sato Foods Industries Co., Ltd.'s (TSE:2814) recent earnings didn't contain any surprises. However, we believe that investors should be aware of some underlying factors which may be of concern.
We've discovered 2 warning signs about Sato Foods Industries. View them for free.The Impact Of Unusual Items On Profit
Importantly, our data indicates that Sato Foods Industries' profit received a boost of JP¥64m 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. 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 Sato Foods Industries doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.
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
Arguably, Sato Foods Industries' statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Sato Foods Industries' statutory profits are better than its underlying earnings power. But at least holders can take some solace from the 32% per annum growth in EPS for the last three. 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Be aware that Sato Foods Industries is showing 2 warning signs in our investment analysis and 1 of those can't be ignored...
Today we've zoomed in on a single data point to better understand the nature of Sato Foods Industries' 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.
Valuation is complex, but we're here to simplify it.
Discover if Sato Foods Industries might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.
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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.