We Think Mitsui Mining & Smelting's (TSE:5706) Solid Earnings Are Understated

The market seemed underwhelmed by the solid earnings posted by Mitsui Mining & Smelting Co., Ltd. (TSE:5706) recently. Our analysis suggests that there are some reasons for hope that investors should be aware of.

See our latest analysis for Mitsui Mining & Smelting

How Do Unusual Items Influence Profit?

To properly understand Mitsui Mining & Smelting's profit results, we need to consider the JP¥6.0b 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, after all, that's exactly what the accounting terminology implies. Assuming those unusual expenses don't come up again, we'd therefore expect Mitsui Mining & Smelting to produce a higher profit next year, all else being equal.

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 Mitsui Mining & Smelting's Profit Performance

Unusual items (expenses) detracted from Mitsui Mining & Smelting's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Mitsui Mining & Smelting's statutory profit actually understates its earnings potential! And on top of that, its earnings per share have grown at an extremely impressive rate over the last year. 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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. In terms of investment risks, we've identified 2 warning signs with Mitsui Mining & Smelting, and understanding them should be part of your investment process.

Today we've zoomed in on a single data point to better understand the nature of Mitsui Mining & Smelting's 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. 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.