There May Be Underlying Issues With The Quality Of TOWA Hi SYSTEMLTD's (TSE:4172) Earnings

TOWA Hi SYSTEM CO.,LTD.'s (TSE:4172) robust earnings report didn't manage to move the market for its stock. Our analysis suggests that shareholders have noticed something concerning in the numbers.

View our latest analysis for TOWA Hi SYSTEMLTD

The Impact Of Unusual Items On Profit

For anyone who wants to understand TOWA Hi SYSTEMLTD's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from JP¥110m worth of unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. 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'. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

Our Take On TOWA Hi SYSTEMLTD's Profit Performance

Arguably, TOWA Hi SYSTEMLTD's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that TOWA Hi SYSTEMLTD's statutory profits are better than its underlying earnings power. But at least holders can take some solace from the 55% EPS growth in the last year. 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 if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. For example - TOWA Hi SYSTEMLTD has 2 warning signs we think you should be aware of.

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