We Think Grupo Sports World. de's (BMV:SPORTS) Profit Is Only A Baseline For What They Can Achieve

Grupo Sports World, S.A.B. de C.V. (BMV:SPORTS) just reported healthy earnings but the stock price didn't move much. Our analysis suggests that investors might be missing some promising details.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

A Closer Look At Grupo Sports World. de's 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. 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.

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. To quote a 2014 paper by Lewellen and Resutek, "firms with higher accruals tend to be less profitable in the future".

Over the twelve months to March 2025, Grupo Sports World. de recorded an accrual ratio of -0.85. Therefore, its statutory earnings were very significantly less than its free cashflow. In fact, it had free cash flow of Mex$584m in the last year, which was a lot more than its statutory profit of Mex$299.5m. Grupo Sports World. de's year-on-year free cash flow was as flat as two-day-old fizzy drink.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Grupo Sports World. de.

Our Take On Grupo Sports World. de's Profit Performance

Happily for shareholders, Grupo Sports World. de produced plenty of free cash flow to back up its statutory profit numbers. Because of this, we think Grupo Sports World. de's 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 year. 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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. You'd be interested to know, that we found 1 warning sign for Grupo Sports World. de and you'll want to know about it.

This note has only looked at a single factor that sheds light on the nature of Grupo Sports World. de's profit. But there are plenty of other ways to inform your opinion of a company. 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 with high insider ownership.

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.