We Think That There Are Some Issues For TOWA Hi SYSTEMLTD (TSE:4172) Beyond Its Promising Earnings

TOWA Hi SYSTEM CO.,LTD.'s (TSE:4172 ) stock didn't jump after it announced some healthy earnings. Our analysis showed that there are some concerning factors in the earnings that investors may be cautious of.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

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¥45m 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. 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

We'd posit that TOWA Hi SYSTEMLTD's statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Because of this, we think that it may be that TOWA Hi SYSTEMLTD's statutory profits are better than its underlying earnings power. Nonetheless, it's still worth noting that its earnings per share have grown at 42% over the last three years. 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. At Simply Wall St, we found 1 warning sign for TOWA Hi SYSTEMLTD and we think they deserve your attention.

This note has only looked at a single factor that sheds light on 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. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.