The Strong Earnings Posted By Boot Barn Holdings (NYSE:BOOT) Are A Good Indication Of The Strength Of The Business

By
Simply Wall St
Published
May 19, 2021
NYSE:BOOT
Source: Shutterstock

The subdued stock price reaction suggests that Boot Barn Holdings, Inc.'s (NYSE:BOOT) strong earnings didn't offer any surprises. Our analysis suggests that investors might be missing some promising details.

Check out our latest analysis for Boot Barn Holdings

earnings-and-revenue-history
NYSE:BOOT Earnings and Revenue History May 20th 2021

Examining Cashflow Against Boot Barn Holdings' 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. You could think of the accrual ratio from cashflow as the 'non-FCF profit ratio'.

Therefore, it's actually considered a good thing when a company has a negative accrual ratio, but a bad thing if its accrual ratio is positive. That is not intended to imply we should worry about a positive accrual ratio, but it's worth noting where the accrual ratio is rather high. 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 2021, Boot Barn Holdings recorded an accrual ratio of -0.15. That indicates that its free cash flow quite significantly exceeded its statutory profit. To wit, it produced free cash flow of US$127m during the period, dwarfing its reported profit of US$59.4m. Given that Boot Barn Holdings had negative free cash flow in the prior corresponding period, the trailing twelve month resul of US$127m 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 Boot Barn Holdings' Profit Performance

As we discussed above, Boot Barn Holdings has perfectly satisfactory free cash flow relative to profit. Based on this observation, we consider it likely that Boot Barn Holdings' statutory profit actually understates its earnings potential! Better yet, its EPS are growing strongly, which is nice to see. 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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. For example, we've discovered 1 warning sign that you should run your eye over to get a better picture of Boot Barn Holdings.

Today we've zoomed in on a single data point to better understand the nature of Boot Barn Holdings' profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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.

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