We Think CK SAN-ETSU's (TSE:5757) Robust Earnings Are Conservative

The subdued stock price reaction suggests that CK SAN-ETSU Co., Ltd.'s (TSE:5757) strong earnings didn't offer any surprises. Investors are probably missing some underlying factors which are encouraging for the future of the company.

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The Impact Of Unusual Items On Profit

For anyone who wants to understand CK SAN-ETSU's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by JP¥2.3b due 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. If CK SAN-ETSU 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 CK SAN-ETSU.

Our Take On CK SAN-ETSU's Profit Performance

Unusual items (expenses) detracted from CK SAN-ETSU's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that CK SAN-ETSU's statutory profit actually understates its earnings potential! And on top of that, its earnings per share have grown at 19% 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. 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. At Simply Wall St, we found 2 warning signs for CK SAN-ETSU and we think they deserve your attention.

This note has only looked at a single factor that sheds light on the nature of CK SAN-ETSU'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.