We Think That There Are More Issues For Sanko (TSE:6964) Than Just Sluggish Earnings

A lackluster earnings announcement from Sanko Co., Ltd. (TSE:6964) last week didn't sink the stock price. However, we believe that investors should be aware of some underlying factors which may be of concern.

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How Do Unusual Items Influence Profit?

To properly understand Sanko's profit results, we need to consider the JP¥156m gain attributed to 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. 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'. We can see that Sanko's positive unusual items were quite significant relative to its profit in the year to September 2025. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

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

Our Take On Sanko's Profit Performance

As previously mentioned, Sanko's large boost from unusual items won't be there indefinitely, so its statutory earnings are probably a poor guide to its underlying profitability. As a result, we think it may well be the case that Sanko's underlying earnings power is lower than its statutory profit. But at least holders can take some solace from the 12% per annum growth in EPS for the last three. 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 while earnings quality is important, it's equally important to consider the risks facing Sanko at this point in time. You'd be interested to know, that we found 3 warning signs for Sanko and you'll want to know about them.

Today we've zoomed in on a single data point to better understand the nature of Sanko's 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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.

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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.