Weak Statutory Earnings May Not Tell The Whole Story For Keifuku Electric RailroadLtd (TSE:9049)

A lackluster earnings announcement from Keifuku Electric Railroad Co.,Ltd. (TSE:9049) last week didn't sink the stock price. However, we believe that investors should be aware of some underlying factors which may be of concern.

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The Impact Of Unusual Items On Profit

To properly understand Keifuku Electric RailroadLtd's profit results, we need to consider the JP¥518m gain attributed to unusual items. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. And that's as you'd expect, given these boosts are described as 'unusual'. If Keifuku Electric RailroadLtd doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Keifuku Electric RailroadLtd.

Our Take On Keifuku Electric RailroadLtd's Profit Performance

Arguably, Keifuku Electric RailroadLtd's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Keifuku Electric RailroadLtd's statutory profits are better than its underlying earnings power. But the good news is that its EPS growth over the last three years has been very impressive. 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Case in point: We've spotted 2 warning signs for Keifuku Electric RailroadLtd you should be aware of.

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