The recent earnings posted by Sato Foods Co., Ltd. (TSE:2923) were solid, but the stock didn't move as much as we expected. However the statutory profit number doesn't tell the whole story, and we have found some factors which might be of concern to shareholders.
Check out our latest analysis for Sato Foods
How Do Unusual Items Influence Profit?
For anyone who wants to understand Sato Foods' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from JP¥180m worth of unusual items. 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. And, after all, that's exactly what the accounting terminology implies. If Sato Foods 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.
Our Take On Sato Foods' Profit Performance
Arguably, Sato Foods' statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Sato Foods' statutory profits are better than its underlying earnings power. Nonetheless, it's still worth noting that its earnings per share have grown at 50% over the last three years. 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. If you want to do dive deeper into Sato Foods, you'd also look into what risks it is currently facing. For example, we've discovered 1 warning sign that you should run your eye over to get a better picture of Sato Foods.
Today we've zoomed in on a single data point to better understand the nature of Sato Foods' 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.
About TSE:2923
Sato Foods
Produces and sells packaged mochi rice cakes and packaged cooked rice in Japan.
Adequate balance sheet with questionable track record.
