West Japan Railway's (TSE:9021) Earnings May Just Be The Starting Point

The subdued stock price reaction suggests that West Japan Railway Company's (TSE:9021) strong earnings didn't offer any surprises. Our analysis suggests that investors might be missing some promising details.

See our latest analysis for West Japan Railway

How Do Unusual Items Influence Profit?

To properly understand West Japan Railway's profit results, we need to consider the JP¥19b expense attributed to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's hardly a surprise given these line items are considered unusual. Assuming those unusual expenses don't come up again, we'd therefore expect West Japan Railway to produce a higher profit next year, all else being equal.

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 West Japan Railway's Profit Performance

Unusual items (expenses) detracted from West Japan Railway's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that West Japan Railway's statutory profit actually understates its earnings potential! And the EPS is up 12% over the last twelve months. 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. In terms of investment risks, we've identified 2 warning signs with West Japan Railway, and understanding them should be part of your investment process.

This note has only looked at a single factor that sheds light on the nature of West Japan Railway'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. 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.