Shareholders Will Be Pleased With The Quality of EDION's (TSE:2730) Earnings

The subdued stock price reaction suggests that EDION Corporation's (TSE:2730) strong earnings didn't offer any surprises. Investors are probably missing some underlying factors which are encouraging for the future of the company.

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How Do Unusual Items Influence Profit?

For anyone who wants to understand EDION's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by JP¥3.2b due 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. Assuming those unusual expenses don't come up again, we'd therefore expect EDION to produce a higher profit next year, all else being equal.

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 EDION's Profit Performance

Because unusual items detracted from EDION's 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 EDION's statutory profit actually understates its earnings potential! And on top of that, its earnings per share have grown at 7.1% per year over the last three years. 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 if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. When we did our research, we found 2 warning signs for EDION (1 is potentially serious!) that we believe deserve your full attention.

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