Hiroshima Electric RailwayLtd's (TSE:9033) Promising Earnings May Rest On Soft Foundations

Despite posting some strong earnings, the market for Hiroshima Electric Railway Co.,Ltd.'s (TSE:9033) stock hasn't moved much. Our analysis suggests that this might be because shareholders have noticed some concerning underlying factors.

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The Impact Of Unusual Items On Profit

Importantly, our data indicates that Hiroshima Electric RailwayLtd's profit received a boost of JP¥2.4b in unusual items, over the last year. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. 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'. We can see that Hiroshima Electric RailwayLtd's positive unusual items were quite significant relative to its profit in the year to March 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 Hiroshima Electric RailwayLtd.

Our Take On Hiroshima Electric RailwayLtd's Profit Performance

As previously mentioned, Hiroshima Electric RailwayLtd'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 Hiroshima Electric RailwayLtd's underlying earnings power is lower than its statutory profit. The silver lining is that its EPS growth over the last year has been really wonderful, even if it's not a perfect measure. 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 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 2 warning signs for Hiroshima Electric RailwayLtd (of which 1 is potentially serious!) you should know about.

This note has only looked at a single factor that sheds light on the nature of Hiroshima Electric RailwayLtd'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.