We Think ARE Holdings' (TSE:5857) Profit Is Only A Baseline For What They Can Achieve

ARE Holdings, Inc. (TSE:5857) just reported healthy earnings but the stock price didn't move much. We think that investors have missed some encouraging factors underlying the profit figures.

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The Impact Of Unusual Items On Profit

To properly understand ARE Holdings' profit results, we need to consider the JP¥2.2b expense attributed to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And, after all, that's exactly what the accounting terminology implies. If ARE Holdings doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

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 ARE Holdings' Profit Performance

Because unusual items detracted from ARE Holdings' earnings over the last year, you could argue that we can expect an improved result in the current quarter. Based on this observation, we consider it likely that ARE Holdings' statutory profit actually understates its earnings potential! And the EPS is up 68% over the last twelve months. 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. If you'd like to know more about ARE Holdings as a business, it's important to be aware of any risks it's facing. Case in point: We've spotted 2 warning signs for ARE Holdings you should be mindful of and 1 of these bad boys makes us a bit uncomfortable.

This note has only looked at a single factor that sheds light on the nature of ARE Holdings' 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. 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.