NF Holdings' (TSE:6864) Profits May Not Reveal Underlying Issues

Following the solid earnings report from NF Holdings Corporation (TSE:6864), 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.

Our free stock report includes 4 warning signs investors should be aware of before investing in NF Holdings. Read for free now.

How Do Unusual Items Influence Profit?

For anyone who wants to understand NF Holdings' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from JP¥60m worth of unusual items. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. And, after all, that's exactly what the accounting terminology implies. If NF Holdings 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 NF Holdings.

Our Take On NF Holdings' Profit Performance

Arguably, NF Holdings' statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that NF Holdings' statutory profits are better than its underlying earnings power. But at least holders can take some solace from the 39% EPS growth in the last year. 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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. Case in point: We've spotted 4 warning signs for NF Holdings you should be mindful of and 1 of them is potentially serious.

This note has only looked at a single factor that sheds light on the nature of NF 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.