Earnings Troubles May Signal Larger Issues for Tachibana Eletech (TSE:8159) Shareholders

Despite Tachibana Eletech Co., Ltd.'s (TSE:8159) recent earnings report having lackluster headline numbers, the market responded positively. While shareholders may be willing to overlook soft profit numbers, we believe that they should also be taking into account some other factors which may be cause for concern.

Our free stock report includes 1 warning sign investors should be aware of before investing in Tachibana Eletech. Read for free now.

The Impact Of Unusual Items On Profit

For anyone who wants to understand Tachibana Eletech's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from JP¥1.6b 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. 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. Which is hardly surprising, given the name. 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 Tachibana Eletech's Profit Performance

We'd posit that Tachibana Eletech's statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Because of this, we think that it may be that Tachibana Eletech's statutory profits are better than its underlying earnings power. Nonetheless, it's still worth noting that its earnings per share have grown at 47% over the last three years. 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 if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. Every company has risks, and we've spotted 1 warning sign for Tachibana Eletech you should know about.

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