Ichigo's (TSE:2337) Profits Appear To Have Quality Issues

The recent earnings posted by Ichigo Inc. (TSE:2337) were solid, but the stock didn't move as much as we expected. However the statutory profit number doesn't tell the whole story, and we have found some factors which might be of concern to shareholders.

View our latest analysis for Ichigo

How Do Unusual Items Influence Profit?

For anyone who wants to understand Ichigo's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from JP¥7.4b worth of unusual items. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. Which is hardly surprising, given the name. We can see that Ichigo's positive unusual items were quite significant relative to its profit in the year to February 2024. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

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 Ichigo's Profit Performance

As we discussed above, we think the significant positive unusual item makes Ichigo's earnings a poor guide to its underlying profitability. For this reason, we think that Ichigo's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. 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. So while earnings quality is important, it's equally important to consider the risks facing Ichigo at this point in time. Every company has risks, and we've spotted 3 warning signs for Ichigo (of which 1 is a bit concerning!) you should know about.

Today we've zoomed in on a single data point to better understand the nature of Ichigo's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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 that insiders are buying.

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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.