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. Our analysis suggests that along with soft profit numbers, investors should be aware of some other underlying weaknesses in the numbers.

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How Do Unusual Items Influence Profit?

To properly understand Keifuku Electric RailroadLtd's profit results, we need to consider the JP¥525m gain attributed to unusual items. 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. 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. Therefore, it seems possible to us that Keifuku Electric RailroadLtd's true underlying earnings power is actually less than its statutory profit. But on the bright side, its earnings per share have grown at an extremely impressive rate over the last three years. 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. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. In terms of investment risks, we've identified 2 warning signs with Keifuku Electric RailroadLtd, and understanding these should be part of your investment process.

Today we've zoomed in on a single data point to better understand 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. 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 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.