Shareholders Will Be Pleased With The Quality of Okamoto Industries' (TSE:5122) Earnings

Even though Okamoto Industries, Inc. (TSE:5122 ) posted strong earnings, investors appeared to be underwhelmed. We did some digging and actually think they are being unnecessarily pessimistic.

See our latest analysis for Okamoto Industries

How Do Unusual Items Influence Profit?

To properly understand Okamoto Industries' profit results, we need to consider the JP¥2.6b expense attributed to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. 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 Okamoto Industries 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 Okamoto Industries.

Our Take On Okamoto Industries' Profit Performance

Unusual items (expenses) detracted from Okamoto Industries' earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Okamoto Industries' statutory profit actually understates its earnings potential! And the EPS is up 38% annually, 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. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. Every company has risks, and we've spotted 1 warning sign for Okamoto Industries you should know about.

This note has only looked at a single factor that sheds light on the nature of Okamoto Industries' profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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.