There May Be Reason For Hope In NAFCO's (TSE:2790) Disappointing Earnings

Investors were disappointed with the weak earnings posted by NAFCO Co., Ltd. (TSE:2790 ). However, our analysis suggests that the soft headline numbers are getting counterbalanced by some positive underlying factors.

We've discovered 3 warning signs about NAFCO. View them for free.

How Do Unusual Items Influence Profit?

For anyone who wants to understand NAFCO's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by JP¥801m 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. NAFCO took a rather significant hit from unusual items in the year to March 2025. All else being equal, this would likely have the effect of making the statutory profit look worse than its underlying earnings power.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of NAFCO.

Our Take On NAFCO's Profit Performance

As we mentioned previously, the NAFCO's profit was hampered by unusual items in the last year. Based on this observation, we consider it possible that NAFCO's statutory profit actually understates its earnings potential! Unfortunately, though, its earnings per share actually fell back over the last year. 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. So while earnings quality is important, it's equally important to consider the risks facing NAFCO at this point in time. To help with this, we've discovered 3 warning signs (1 is potentially serious!) that you ought to be aware of before buying any shares in NAFCO.

Today we've zoomed in on a single data point to better understand the nature of NAFCO'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. While it might take a little research on your behalf, you may find this free collection of companies boasting high return on equity, or this list of stocks with significant insider holdings to be useful.

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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.