DIGITAL HEARTS HOLDINGS' (TSE:3676) Soft Earnings Don't Show The Whole Picture

The market for DIGITAL HEARTS HOLDINGS Co., Ltd.'s (TSE:3676) shares didn't move much after it posted weak earnings recently. Our analysis suggests that while the profits are soft, the foundations of the business are strong.

See our latest analysis for DIGITAL HEARTS HOLDINGS

How Do Unusual Items Influence Profit?

Importantly, our data indicates that DIGITAL HEARTS HOLDINGS' profit was reduced by JP¥1.2b, due to unusual items, over the last year. 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 that's hardly a surprise given these line items are considered unusual. DIGITAL HEARTS HOLDINGS took a rather significant hit from unusual items in the year to March 2024. All else being equal, this would likely have the effect of making the statutory profit look worse than its underlying earnings power.

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 DIGITAL HEARTS HOLDINGS' Profit Performance

As we mentioned previously, the DIGITAL HEARTS HOLDINGS' profit was hampered by unusual items in the last year. Because of this, we think DIGITAL HEARTS HOLDINGS' underlying earnings potential is as good as, or possibly even better, than the statutory profit makes it seem! 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 DIGITAL HEARTS HOLDINGS at this point in time. For example - DIGITAL HEARTS HOLDINGS has 3 warning signs we think you should be aware of.

This note has only looked at a single factor that sheds light on the nature of DIGITAL HEARTS HOLDINGS' profit. But there are plenty of other ways to inform your opinion of a company. 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.