Nihon Parkerizing's (TSE:4095) Solid Profits Have Weak Fundamentals

Nihon Parkerizing Co., Ltd.'s (TSE:4095) robust earnings report didn't manage to move the market for its stock. Our analysis suggests that this might be because shareholders have noticed some concerning underlying factors.

Check out our latest analysis for Nihon Parkerizing

How Do Unusual Items Influence Profit?

To properly understand Nihon Parkerizing's profit results, we need to consider the JP¥1.2b gain attributed to 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, 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).

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

Our Take On Nihon Parkerizing's Profit Performance

Arguably, Nihon Parkerizing's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Nihon Parkerizing's true underlying earnings power is actually less than its statutory profit. The good news is that, its earnings per share increased by 24% in the last year. 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. So while earnings quality is important, it's equally important to consider the risks facing Nihon Parkerizing at this point in time. For example - Nihon Parkerizing has 1 warning sign we think you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of Nihon Parkerizing's profit. But there are plenty of other ways to inform your opinion of a company. 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.