There May Be Underlying Issues With The Quality Of Nagano Keiki's (TSE:7715) Earnings

Last week's profit announcement from Nagano Keiki Co., Ltd. (TSE:7715) was underwhelming for investors, despite headline numbers being robust. Our analysis uncovered some concerning factors that we believe the market might be paying attention to.

We've discovered 1 warning sign about Nagano Keiki. View them for free.

The Impact Of Unusual Items On Profit

To properly understand Nagano Keiki's profit results, we need to consider the JP¥1.4b gain attributed to 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 analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's as you'd expect, given these boosts are described as 'unusual'. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).

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 Nagano Keiki's Profit Performance

Arguably, Nagano Keiki's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Nagano Keiki's statutory profits are better than its underlying earnings power. But the good news is that its EPS growth over the last three years has been very impressive. 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 Nagano Keiki at this point in time. For example - Nagano Keiki has 1 warning sign we think you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of Nagano Keiki's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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.