There May Be Reason For Hope In DoubleVerify Holdings' (NYSE:DV) Disappointing Earnings

The market was pleased with the recent earnings report from DoubleVerify Holdings, Inc. (NYSE:DV), despite the profit numbers being soft. However, we think the company is showing some signs that things are more promising than they seem.

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A Closer Look At DoubleVerify 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. 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. 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. Notably, there is some academic evidence that suggests that a high accrual ratio is a bad sign for near-term profits, generally speaking.

For the year to March 2025, DoubleVerify Holdings had an accrual ratio of -0.11. Therefore, its statutory earnings were quite a lot less than its free cashflow. Indeed, in the last twelve months it reported free cash flow of US$139m, well over the US$51.4m it reported in profit. DoubleVerify Holdings shareholders are no doubt pleased that free cash flow improved over the last twelve months.

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 DoubleVerify Holdings' Profit Performance

As we discussed above, DoubleVerify Holdings has perfectly satisfactory free cash flow relative to profit. Based on this observation, we consider it likely that DoubleVerify Holdings' statutory profit actually understates its earnings potential! And on top of that, its earnings per share have grown at 70% per year 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. So while earnings quality is important, it's equally important to consider the risks facing DoubleVerify Holdings at this point in time. In terms of investment risks, we've identified 2 warning signs with DoubleVerify Holdings, and understanding them should be part of your investment process.

Today we've zoomed in on a single data point to better understand the nature of DoubleVerify 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 with significant insider holdings to be useful.

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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.