Chuetsu Pulp & Paper's (TSE:3877) Soft Earnings Don't Show The Whole Picture

Chuetsu Pulp & Paper Co., Ltd.'s (TSE:3877) recent soft profit numbers didn't appear to worry shareholders, as the stock price showed strength. However, we think the company is showing some signs that things are more promising than they seem.

See our latest analysis for Chuetsu Pulp & Paper

The Impact Of Unusual Items On Profit

To properly understand Chuetsu Pulp & Paper's profit results, we need to consider the JP¥1.6b expense attributed to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And, after all, that's exactly what the accounting terminology implies. If Chuetsu Pulp & Paper doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Chuetsu Pulp & Paper.

Our Take On Chuetsu Pulp & Paper's Profit Performance

Unusual items (expenses) detracted from Chuetsu Pulp & Paper's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Chuetsu Pulp & Paper's statutory profit actually understates its earnings potential! And on top of that, its earnings per share have grown at 56% per year 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. While conducting our analysis, we found that Chuetsu Pulp & Paper has 4 warning signs and it would be unwise to ignore these.

Today we've zoomed in on a single data point to better understand the nature of Chuetsu Pulp & Paper'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. 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.