Starts' (TSE:8850) Profits May Not Reveal Underlying Issues

Starts Corporation Inc.'s (TSE:8850) healthy profit numbers didn't contain any surprises for investors. We think this is due to investors looking beyond the statutory profits and being concerned with what they see.

View our latest analysis for Starts

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Starts' profit received a boost of JP¥2.6b in unusual items, over the last year. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. Which is hardly surprising, given the name. If Starts doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current 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 Starts' Profit Performance

Arguably, Starts' statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Starts' true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 66% per annum growth in EPS for the last three. 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 Starts as a business, it's important to be aware of any risks it's facing. While conducting our analysis, we found that Starts has 1 warning sign and it would be unwise to ignore this.

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