We Think That There Are Issues Underlying Zojirushi's (TSE:7965) Earnings
Zojirushi Corporation's recent profit announcement was disappointing despite strong headline figures. Analysis reveals concerning factors, particularly a JP¥1.9b boost from unusual items, suggesting that the statutory profit may not reflect true earnings power. While EPS has grown 45% annually over the last three years, the underlying profitability may be lower. Investors should consider the identified risks and additional factors beyond earnings quality to understand Zojirushi's financial health.
Last week's profit announcement from Zojirushi Corporation (TSE:7965) was underwhelming for investors, despite headline numbers being robust. Our analysis uncovered some concerning factors that we believe the market might be paying attention to.
Check out our latest analysis for Zojirushi
The Impact Of Unusual Items On Profit
Importantly, our data indicates that Zojirushi's profit received a boost of JP¥1.9b in unusual items, over the last year. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. And, after all, that's exactly what the accounting terminology implies. We can see that Zojirushi's positive unusual items were quite significant relative to its profit in the year to November 2024. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.
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 Zojirushi's Profit Performance
As we discussed above, we think the significant positive unusual item makes Zojirushi's earnings a poor guide to its underlying profitability. As a result, we think it may well be the case that Zojirushi's underlying earnings power is lower than its statutory profit. But at least holders can take some solace from the 45% per annum growth in EPS for the last three. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. So while earnings quality is important, it's equally important to consider the risks facing Zojirushi at this point in time. In terms of investment risks, we've identified 3 warning signs with Zojirushi, and understanding these bad boys should be part of your investment process.
This note has only looked at a single factor that sheds light on the nature of Zojirushi'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.
