We Think Ahjikan's (TSE:2907) Profit Is Only A Baseline For What They Can Achieve

When companies post strong earnings, the stock generally performs well, just like Ahjikan Co., Ltd.'s (TSE:2907) stock has recently. Our analysis found some more factors that we think are good for shareholders.

View our latest analysis for Ahjikan

The Impact Of Unusual Items On Profit

To properly understand Ahjikan's profit results, we need to consider the JP¥262m expense attributed to unusual items. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. 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. Assuming those unusual expenses don't come up again, we'd therefore expect Ahjikan to produce a higher profit next year, all else being equal.

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

Our Take On Ahjikan's Profit Performance

Unusual items (expenses) detracted from Ahjikan's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Ahjikan's statutory profit actually understates its earnings potential! And on top of that, 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. So while earnings quality is important, it's equally important to consider the risks facing Ahjikan at this point in time. You'd be interested to know, that we found 1 warning sign for Ahjikan and you'll want to know about it.

Today we've zoomed in on a single data point to better understand the nature of Ahjikan'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. 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.