Investors Can Find Comfort In Xebio Holdings' (TSE:8281) Earnings Quality

Xebio Holdings Co., Ltd.'s (TSE:8281) earnings announcement last week didn't impress shareholders. However, our analysis suggests that the soft headline numbers are getting counterbalanced by some positive underlying factors.

Check out our latest analysis for Xebio Holdings

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Xebio Holdings' profit was reduced by JP¥1.4b, due to unusual items, over the last year. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. 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 Xebio Holdings to produce a higher profit next year, all else being equal.

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

Our Take On Xebio Holdings' Profit Performance

Unusual items (expenses) detracted from Xebio Holdings' earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Xebio Holdings' statutory profit actually understates its earnings potential! And on top of that, its earnings per share have grown at 38% per year over the last three years. 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. For example - Xebio Holdings has 3 warning signs we think you should be aware of.

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