Sugai Chemical Industry's (TSE:4120) Soft Earnings Don't Show The Whole Picture

The market for Sugai Chemical Industry Co., Ltd.'s (TSE:4120) shares didn't move much after it posted weak earnings recently. We did some digging, and we believe the earnings are stronger than they seem.

We've discovered 1 warning sign about Sugai Chemical Industry. View them for free.

The Impact Of Unusual Items On Profit

To properly understand Sugai Chemical Industry's profit results, we need to consider the JP¥83m expense attributed to unusual items. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's hardly a surprise given these line items are considered unusual. If Sugai Chemical Industry 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 Sugai Chemical Industry.

Our Take On Sugai Chemical Industry's Profit Performance

Because unusual items detracted from Sugai Chemical Industry's earnings over the last year, you could argue that we can expect an improved result in the current quarter. Because of this, we think Sugai Chemical Industry's earnings potential is at least as good as it seems, and maybe even better! Unfortunately, though, its earnings per share actually fell back over 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. Case in point: We've spotted 1 warning sign for Sugai Chemical Industry you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of Sugai Chemical Industry'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.