Impressive Earnings May Not Tell The Whole Story For Radius Residential Care (NZSE:RAD)
Radius Residential Care Limited’s (NZSE:RAD) stock was strong after they recently reported robust earnings. However, we think that shareholders may be missing some concerning details in the numbers.
To properly understand Radius Residential Care’s profit results, we need to consider the NZ$4.1m gain attributed to unusual items. While it’s always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that’s as you’d expect, given these boosts are described as ‘unusual’. If Radius Residential Care doesn’t see that contribution repeat, then all else being equal we’d expect its profit to drop over the current year.
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.
We’d posit that Radius Residential Care’s statutory earnings aren’t a clean read on ongoing productivity, due to the large unusual item. Because of this, we think that it may be that Radius Residential Care’s statutory profits are better than its underlying earnings power. The good news is that it earned a profit in the last twelve months, despite its previous loss. 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. With this in mind, we wouldn’t consider investing in a stock unless we had a thorough understanding of the risks. For example, we’ve found that Radius Residential Care has 4 warning signs (1 doesn’t sit too well with us!) that deserve your attention before going any further with your analysis.
This note has only looked at a single factor that sheds light on the nature of Radius Residential Care’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. 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.
