Kanagawa Chuo Kotsu's (TSE:9081) Earnings Offer More Than Meets The Eye

The market seemed underwhelmed by the solid earnings posted by Kanagawa Chuo Kotsu Co., Ltd. (TSE:9081) recently. Our analysis suggests that there are some reasons for hope that investors should be aware of.

We've discovered 2 warning signs about Kanagawa Chuo Kotsu. View them for free.

How Do Unusual Items Influence Profit?

For anyone who wants to understand Kanagawa Chuo Kotsu's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by JP¥1.3b due to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And that's hardly a surprise given these line items are considered unusual. If Kanagawa Chuo Kotsu doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Kanagawa Chuo Kotsu.

Our Take On Kanagawa Chuo Kotsu's Profit Performance

Unusual items (expenses) detracted from Kanagawa Chuo Kotsu's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Kanagawa Chuo Kotsu's statutory profit actually understates its earnings potential! Better yet, its EPS are growing strongly, which is nice to see. 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. To help with this, we've discovered 2 warning signs (1 is significant!) that you ought to be aware of before buying any shares in Kanagawa Chuo Kotsu.

This note has only looked at a single factor that sheds light on the nature of Kanagawa Chuo Kotsu's profit. But there are plenty of other ways to inform your opinion of a company. 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.