Reading International (NASDAQ:RDI) Strong Profits May Be Masking Some Underlying Issues

By
Simply Wall St
Published
August 16, 2021
NasdaqCM:RDI
Source: Shutterstock

The recent earnings posted by Reading International, Inc. (NASDAQ:RDI) were solid, but the stock didn't move as much as we expected. We believe that shareholders have noticed some concerning factors beyond the statutory profit numbers.

See our latest analysis for Reading International

earnings-and-revenue-history
NasdaqCM:RDI Earnings and Revenue History August 17th 2021

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Reading International's profit received a boost of US$90m in unusual items, over the last year. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. And, after all, that's exactly what the accounting terminology implies. Reading International had a rather significant contribution from unusual items relative to its profit to June 2021. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

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 Reading International's Profit Performance

As we discussed above, we think the significant positive unusual item makes Reading International's earnings a poor guide to its underlying profitability. For this reason, we think that Reading International's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. The good news is that it earned a profit in the last twelve months, despite its previous loss. 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Be aware that Reading International is showing 4 warning signs in our investment analysis and 2 of those are a bit unpleasant...

Today we've zoomed in on a single data point to better understand the nature of Reading International'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 that insiders are buying.

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