We Think Ceres' (TSE:3696) Robust Earnings Are Conservative

Investors were underwhelmed by the solid earnings posted by Ceres Inc. (TSE:3696) recently. We did some digging and actually think they are being unnecessarily pessimistic.

Check out our latest analysis for Ceres

How Do Unusual Items Influence Profit?

To properly understand Ceres' profit results, we need to consider the JP¥293m 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 that's hardly a surprise given these line items are considered unusual. If Ceres 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 Ceres.

Our Take On Ceres' Profit Performance

Because unusual items detracted from Ceres' earnings over the last year, you could argue that we can expect an improved result in the current quarter. Because of this, we think Ceres' earnings potential is at least as good as it seems, and maybe even better! Furthermore, it has done a great job growing EPS over the last year. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. For example - Ceres has 2 warning signs we think you should be aware of.

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