Stock Analysis

Shareholders Will Be Pleased With The Quality of Collegium Pharmaceutical's (NASDAQ:COLL) Earnings

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NasdaqGS:COLL
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The subdued stock price reaction suggests that Collegium Pharmaceutical, Inc.'s (NASDAQ:COLL) strong earnings didn't offer any surprises. Our analysis suggests that investors might be missing some promising details.

Check out our latest analysis for Collegium Pharmaceutical

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NasdaqGS:COLL Earnings and Revenue History May 13th 2021

Zooming In On Collegium Pharmaceutical'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. In plain english, this ratio subtracts FCF from net profit, and divides that number by the company's average operating assets over that 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.

For the year to March 2021, Collegium Pharmaceutical had an accrual ratio of -0.25. That indicates that its free cash flow quite significantly exceeded its statutory profit. Indeed, in the last twelve months it reported free cash flow of US$115m, well over the US$42.0m it reported in profit. Given that Collegium Pharmaceutical had negative free cash flow in the prior corresponding period, the trailing twelve month resul of US$115m would seem to be a step in the right direction.

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 Collegium Pharmaceutical's Profit Performance

Happily for shareholders, Collegium Pharmaceutical produced plenty of free cash flow to back up its statutory profit numbers. Because of this, we think Collegium Pharmaceutical's underlying earnings potential is as good as, or possibly even better, than the statutory profit makes it seem! And one can definitely find a positive in the fact that it made a profit this year, despite losing money last year. 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. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. To help with this, we've discovered 2 warning signs (1 doesn't sit too well with us!) that you ought to be aware of before buying any shares in Collegium Pharmaceutical.

Today we've zoomed in on a single data point to better understand the nature of Collegium Pharmaceutical's 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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