Art Vivant Co., Ltd. (TSE:7523) just reported some strong earnings, and the market reacted accordingly with a healthy uplift in the share price. We did some analysis and think that investors are missing some details hidden beneath the profit numbers.
Check out our latest analysis for Art Vivant
How Do Unusual Items Influence Profit?
For anyone who wants to understand Art Vivant’s profit beyond the statutory numbers, it’s important to note that during the last twelve months statutory profit gained from JP¥407m worth of 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. Which is hardly surprising, given the name. If Art Vivant 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 Art Vivant.
Our Take On Art Vivant’s Profit Performance
Arguably, Art Vivant’s statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Art Vivant’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. 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. So if you’d like to dive deeper into this stock, it’s crucial to consider any risks it’s facing. In terms of investment risks, we’ve identified 2 warning signs with Art Vivant, and understanding them should be part of your investment process.
Today we’ve zoomed in on a single data point to better understand the nature of Art Vivant’s profit. But there are plenty of other ways to inform your opinion of a company. 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.
Valuation is complex, but we’re helping make it simple.
Find out whether Art Vivant is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.
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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.