We Think Comer Industries' (BIT:COM) Healthy Earnings Might Be Conservative

Despite posting healthy earnings, Comer Industries S.p.A.'s (BIT:COM ) stock has been quite weak. We have done some analysis, and found some encouraging factors that we believe the shareholders should consider.

Check out our latest analysis for Comer Industries

Zooming In On Comer Industries' 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). To get the accrual ratio we first subtract FCF from profit for a period, and then divide that number by the average operating assets for the period. The ratio shows us how much a company's profit exceeds its FCF.

That means a negative accrual ratio is a good thing, because it shows that the company is bringing in more free cash flow than its profit would suggest. While having an accrual ratio above zero is of little concern, we do think it's worth noting when a company has a relatively high accrual ratio. 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 2020, Comer Industries recorded an accrual ratio of -0.12. That indicates that its free cash flow was a fair bit more than its statutory profit. Indeed, in the last twelve months it reported free cash flow of €37m, well over the €21.8m it reported in profit. Comer Industries shareholders are no doubt pleased that free cash flow improved over the last twelve months.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Comer Industries.

Our Take On Comer Industries' Profit Performance

Comer Industries' accrual ratio is solid, and indicates strong free cash flow, as we discussed, above. Because of this, we think Comer Industries' earnings potential is at least as good as it seems, and maybe even better! And the EPS is up 58% annually, 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. If you'd like to know more about Comer Industries as a business, it's important to be aware of any risks it's facing. You'd be interested to know, that we found 2 warning signs for Comer Industries and you'll want to know about these.

This note has only looked at a single factor that sheds light on the nature of Comer Industries' 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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This article by Simply Wall St is general in nature. 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.
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