Isetan Mitsukoshi Holdings' (TSE:3099) Strong Earnings Are Of Good Quality

Isetan Mitsukoshi Holdings Ltd. (TSE:3099) just reported healthy earnings but the stock price didn't move much. Investors are probably missing some underlying factors which are encouraging for the future of the company.

Check out our latest analysis for Isetan Mitsukoshi Holdings

The Impact Of Unusual Items On Profit

To properly understand Isetan Mitsukoshi Holdings' profit results, we need to consider the JP¥7.5b expense attributed to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that's exactly what the accounting terminology implies. Assuming those unusual expenses don't come up again, we'd therefore expect Isetan Mitsukoshi Holdings 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 Isetan Mitsukoshi Holdings' Profit Performance

Because unusual items detracted from Isetan Mitsukoshi Holdings' earnings over the last year, you could argue that we can expect an improved result in the current quarter. Because of this, we think Isetan Mitsukoshi Holdings' earnings potential is at least as good as it seems, and maybe even better! And on top of that, its earnings per share increased by 70% in 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 Isetan Mitsukoshi Holdings at this point in time. For example, Isetan Mitsukoshi Holdings has 3 warning signs (and 1 which can't be ignored) we think you should know about.

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