Plover Bay Technologies' (HKG:1523) Solid Earnings Are Supported By Other Strong Factors

When companies post strong earnings, the stock generally performs well, just like Plover Bay Technologies Limited's (HKG:1523) stock has recently. We did some digging and found some further encouraging factors that investors will like.

Check out our latest analysis for Plover Bay Technologies

A Closer Look At Plover Bay Technologies' Earnings

Many investors haven't heard of the accrual ratio from cashflow, but it is actually a useful measure of how well a company's profit is backed up by free cash flow (FCF) during a given period. In plain english, this ratio subtracts FCF from net profit, and divides that number by the company's average operating assets over that period. This ratio tells us how much of a company's profit is not backed by free cashflow.

As a result, a negative accrual ratio is a positive for the company, and a positive accrual ratio is a negative. 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. Notably, there is some academic evidence that suggests that a high accrual ratio is a bad sign for near-term profits, generally speaking.

Over the twelve months to December 2023, Plover Bay Technologies recorded an accrual ratio of -0.43. Therefore, its statutory earnings were very significantly less than its free cashflow. In fact, it had free cash flow of US$36m in the last year, which was a lot more than its statutory profit of US$28.1m. Plover Bay Technologies' free cash flow improved over the last year, which is generally good to see.

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 Plover Bay Technologies' Profit Performance

Happily for shareholders, Plover Bay Technologies produced plenty of free cash flow to back up its statutory profit numbers. Because of this, we think Plover Bay Technologies' underlying earnings potential is as good as, or possibly even better, than the statutory profit makes it seem! And on top of that, its earnings per share have grown at an extremely impressive rate over the last three years. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. So while earnings quality is important, it's equally important to consider the risks facing Plover Bay Technologies at this point in time. In terms of investment risks, we've identified 1 warning sign with Plover Bay Technologies, and understanding it should be part of your investment process.

Today we've zoomed in on a single data point to better understand the nature of Plover Bay Technologies' 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. 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 that insiders are buying to be useful.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.