Stock Analysis

We Think That There Are Some Issues For Bemobi Mobile Tech (BVMF:BMOB3) Beyond Its Promising Earnings

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Bemobi Mobile Tech S.A. (BVMF:BMOB3) just released a solid earnings report, and the stock displayed some strength. Despite this, our analysis suggests that there are some factors weakening the foundations of those good profit numbers.

View our latest analysis for Bemobi Mobile Tech

BOVESPA:BMOB3 Earnings and Revenue History March 23rd 2022

Zooming In On Bemobi Mobile Tech's Earnings

In high finance, the key ratio used to measure how well a company converts reported profits into free cash flow (FCF) is the accrual ratio (from cashflow). The accrual ratio subtracts the FCF from the profit for a given period, and divides the result by the average operating assets of the company over that time. This ratio tells us how much of a company's profit is not backed by free cashflow.

Therefore, it's actually considered a good thing when a company has a negative accrual ratio, but a bad thing if its accrual ratio is positive. While it's not a problem to have a positive accrual ratio, indicating a certain level of non-cash profits, a high accrual ratio is arguably a bad thing, because it indicates paper profits are not matched by cash flow. That's because some academic studies have suggested that high accruals ratios tend to lead to lower profit or less profit growth.

Over the twelve months to December 2021, Bemobi Mobile Tech recorded an accrual ratio of 0.28. Unfortunately, that means its free cash flow was a lot less than its statutory profit, which makes us doubt the utility of profit as a guide. Even though it reported a profit of R$75.3m, a look at free cash flow indicates it actually burnt through R$3.1m in the last year. We saw that FCF was R$71m a year ago though, so Bemobi Mobile Tech has at least been able to generate positive FCF in the past. One positive for Bemobi Mobile Tech shareholders is that it's accrual ratio was significantly better last year, providing reason to believe that it may return to stronger cash conversion in the future. Shareholders should look for improved cashflow relative to profit in the current year, if that is indeed the case.

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 Bemobi Mobile Tech's Profit Performance

Bemobi Mobile Tech didn't convert much of its profit to free cash flow in the last year, which some investors may consider rather suboptimal. Because of this, we think that it may be that Bemobi Mobile Tech's statutory profits are better than its underlying earnings power. And we are pleased to note that EPS is at least heading in the right direction in the alst twelve months. 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 Bemobi Mobile Tech, you'd also look into what risks it is currently facing. Case in point: We've spotted 1 warning sign for Bemobi Mobile Tech you should be aware of.

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

Valuation is complex, but we're helping make it simple.

Find out whether Bemobi Mobile Tech 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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