Impressive Earnings May Not Tell The Whole Story For Odakyu Electric Railway (TSE:9007)

Odakyu Electric Railway Co., Ltd. (TSE:9007) announced strong profits, but the stock was stagnant. We did some digging, and we found some concerning factors in the details.

See our latest analysis for Odakyu Electric Railway

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Odakyu Electric Railway's profit received a boost of JP¥58b in unusual items, over the last year. 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, after all, that's exactly what the accounting terminology implies. We can see that Odakyu Electric Railway's positive unusual items were quite significant relative to its profit in the year to September 2024. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

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 Odakyu Electric Railway's Profit Performance

As we discussed above, we think the significant positive unusual item makes Odakyu Electric Railway's earnings a poor guide to its underlying profitability. As a result, we think it may well be the case that Odakyu Electric Railway's underlying earnings power is lower than its statutory profit. But at least holders can take some solace from the 58% EPS growth in the last year. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. Be aware that Odakyu Electric Railway is showing 4 warning signs in our investment analysis and 2 of those shouldn't be ignored...

This note has only looked at a single factor that sheds light on the nature of Odakyu Electric Railway's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.