Cawachi's (TSE:2664) Earnings Seem To Be Promising
Cawachi Limited (TSE:2664) reported promising earnings, but the market reaction was lukewarm. Analysts suggest that investors may overlook positive aspects of the earnings report, particularly the impact of unusual expenses that reduced profits by JP¥1.2b. These unusual items are often one-off occurrences, indicating potential for improved profits next year. Despite the challenges, Cawachi's EPS has grown by 5.5% annually over the past three years, suggesting underlying strength. However, investors should be aware of two warning signs before considering shares in Cawachi.
The market seemed underwhelmed by last week's earnings announcement from Cawachi Limited (TSE:2664) despite the healthy numbers. We did some analysis to find out why and believe that investors might be missing some encouraging factors contained in the earnings.
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The Impact Of Unusual Items On Profit
Importantly, our data indicates that Cawachi's profit was reduced by JP¥1.2b, due to unusual items, over the last year. 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, after all, that's exactly what the accounting terminology implies. Assuming those unusual expenses don't come up again, we'd therefore expect Cawachi to produce a higher profit next year, all else being equal.
Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Cawachi.
Our Take On Cawachi's Profit Performance
Unusual items (expenses) detracted from Cawachi's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Cawachi's statutory profit actually understates its earnings potential! And the EPS is up 5.5% annually, 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. If you want to do dive deeper into Cawachi, you'd also look into what risks it is currently facing. To help with this, we've discovered 2 warning signs (1 shouldn't be ignored!) that you ought to be aware of before buying any shares in Cawachi.
This note has only looked at a single factor that sheds light on the nature of Cawachi'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.
