Some Investors May Be Willing To Look Past Industrias Peñoles. de's (BMV:PE&OLES) Soft Earnings

The market for Industrias Peñoles, S.A.B. de C.V.'s (BMV:PE&OLES) shares didn't move much after it posted weak earnings recently. Our analysis suggests that while the profits are soft, the foundations of the business are strong.

View our latest analysis for Industrias Peñoles. de

Zooming In On Industrias Peñoles. de's Earnings

As finance nerds would already know, the accrual ratio from cashflow is a key measure for assessing how well a company's free cash flow (FCF) matches its profit. 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.

As a result, a negative accrual ratio is a positive for the company, and a positive accrual ratio is a negative. 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.

Industrias Peñoles. de has an accrual ratio of -0.11 for the year to December 2024. That implies it has good cash conversion, and implies that its free cash flow solidly exceeded its profit last year. Indeed, in the last twelve months it reported free cash flow of US$854m, well over the US$73.3m it reported in profit. Notably, Industrias Peñoles. de had negative free cash flow last year, so the US$854m it produced this year was a welcome improvement.

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 Industrias Peñoles. de's Profit Performance

As we discussed above, Industrias Peñoles. de has perfectly satisfactory free cash flow relative to profit. Based on this observation, we consider it likely that Industrias Peñoles. de's statutory profit actually understates its earnings potential! Unfortunately, though, its earnings per share actually fell back over the last year. 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 want to do dive deeper into Industrias Peñoles. de, you'd also look into what risks it is currently facing. You'd be interested to know, that we found 2 warning signs for Industrias Peñoles. de and you'll want to know about them.

Today we've zoomed in on a single data point to better understand the nature of Industrias Peñoles. de'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 with high insider ownership.

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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.