Impressive Earnings May Not Tell The Whole Story For Nankai Electric Railway (TSE:9044)

Last week's profit announcement from Nankai Electric Railway Co., Ltd. (TSE:9044) was underwhelming for investors, despite headline numbers being robust. We think that the market might be paying attention to some underlying factors that they find to be concerning.

See our latest analysis for Nankai Electric Railway

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Nankai Electric Railway's profit received a boost of JP¥4.5b in unusual items, over the last year. 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 analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. Which is hardly surprising, given the name. If Nankai Electric Railway doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

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 Nankai Electric Railway's Profit Performance

Arguably, Nankai Electric Railway's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Nankai Electric Railway's statutory profits are better than its underlying earnings power. The good news is that, its earnings per share increased by 64% in the last year. 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 while earnings quality is important, it's equally important to consider the risks facing Nankai Electric Railway at this point in time. At Simply Wall St, we found 2 warning signs for Nankai Electric Railway and we think they deserve your attention.

Today we've zoomed in on a single data point to better understand the nature of Nankai Electric Railway's profit. But there are plenty of other ways to inform your opinion of a company. 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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.

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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.