Care Twentyone's (TSE:2373) Promising Earnings May Rest On Soft Foundations

Despite posting some strong earnings, the market for Care Twentyone Corporation's (TSE:2373) stock hasn't moved much. Our analysis suggests that shareholders have noticed something concerning in the numbers.

See our latest analysis for Care Twentyone

The Impact Of Unusual Items On Profit

For anyone who wants to understand Care Twentyone's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from JP¥569m worth of unusual items. 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 crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. And that's as you'd expect, given these boosts are described as 'unusual'. We can see that Care Twentyone's positive unusual items were quite significant relative to its profit in the year to October 2024. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

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

Our Take On Care Twentyone's Profit Performance

As we discussed above, we think the significant positive unusual item makes Care Twentyone's earnings a poor guide to its underlying profitability. For this reason, we think that Care Twentyone's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. 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 Care Twentyone as a business, it's important to be aware of any risks it's facing. For instance, we've identified 5 warning signs for Care Twentyone (2 are significant) you should be familiar with.

This note has only looked at a single factor that sheds light on the nature of Care Twentyone's profit. But there are plenty of other ways to inform your opinion of a company. Some people consider a high return on equity to be a good sign of a quality business. 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.