Teikoku Tsushin Kogyo's (TSE:6763) Promising Earnings May Rest On Soft Foundations

Despite posting some strong earnings, the market for Teikoku Tsushin Kogyo Co., Ltd.'s (TSE:6763) stock hasn't moved much. Our analysis suggests that this might be because shareholders have noticed some concerning underlying factors.

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How Do Unusual Items Influence Profit?

For anyone who wants to understand Teikoku Tsushin Kogyo's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from JP¥187m worth of unusual items. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. 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. And that's as you'd expect, given these boosts are described as 'unusual'. If Teikoku Tsushin Kogyo doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

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

Our Take On Teikoku Tsushin Kogyo's Profit Performance

Arguably, Teikoku Tsushin Kogyo's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Teikoku Tsushin Kogyo's statutory profits are better than its underlying earnings power. Nonetheless, it's still worth noting that its earnings per share have grown at 6.1% over the last three years. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. Every company has risks, and we've spotted 1 warning sign for Teikoku Tsushin Kogyo you should know about.

This note has only looked at a single factor that sheds light on the nature of Teikoku Tsushin Kogyo'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.