We Think That There Are Issues Underlying Hisamitsu Pharmaceutical's (TSE:4530) Earnings

Unsurprisingly, Hisamitsu Pharmaceutical Co., Inc.'s (TSE:4530) stock price was strong on the back of its healthy earnings report. We did some analysis and think that investors are missing some details hidden beneath the profit numbers.

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How Do Unusual Items Influence Profit?

For anyone who wants to understand Hisamitsu Pharmaceutical's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from JP¥4.7b worth of unusual items. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. And, after all, that's exactly what the accounting terminology implies. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).

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 Hisamitsu Pharmaceutical's Profit Performance

Arguably, Hisamitsu Pharmaceutical's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Hisamitsu Pharmaceutical's statutory profits are better than its underlying earnings power. But the good news is that its EPS growth over the last three years has been very impressive. 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. At Simply Wall St, we found 1 warning sign for Hisamitsu Pharmaceutical and we think they deserve your attention.

This note has only looked at a single factor that sheds light on the nature of Hisamitsu Pharmaceutical's profit. But there are plenty of other ways to inform your opinion of a company. 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.