Paris Miki Holdings' (TSE:7455) Profits Appear To Have Quality Issues

Following the solid earnings report from Paris Miki Holdings Inc. (TSE:7455), the market responded by bidding up the stock price. While the profit numbers were good, our analysis has found some concerning factors that shareholders should be aware of.

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How Do Unusual Items Influence Profit?

To properly understand Paris Miki Holdings' profit results, we need to consider the JP¥134m gain attributed to unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. Which is hardly surprising, given the name. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).

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 Paris Miki Holdings' Profit Performance

Arguably, Paris Miki Holdings' statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Paris Miki Holdings' true underlying earnings power is actually less than its statutory profit. The good news is that, its earnings per share increased by 6.9% in the last year. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. In terms of investment risks, we've identified 1 warning sign with Paris Miki Holdings, and understanding it should be part of your investment process.

Today we've zoomed in on a single data point to better understand the nature of Paris Miki Holdings' 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. 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.