Sato Foods Industries' (TSE:2814) Solid Profits Have Weak Fundamentals

Sato Foods Industries Co., Ltd. (TSE:2814) announced strong profits, but the stock was stagnant. Our analysis suggests that shareholders have noticed something concerning in the numbers.

See 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¥158m 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. Which is hardly surprising, given the name. 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 on the bright side, its earnings per share have grown at an extremely impressive rate over the last three years. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. If you want to do dive deeper into Sato Foods Industries, you'd also look into what risks it is currently facing. To that end, you should learn about the 3 warning signs we've spotted with Sato Foods Industries (including 1 which is concerning).

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. 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.