Despite strong numbers, the market seemed underwhelmed by Alpha Real Estate Services’ (ATH:ASTAK) earnings report last week. Our analysis suggests that shareholders may be missing some positive fundamentals contained in the earnings report.
Check out our latest analysis for Alpha Real Estate Services.
ATSE:ASTAK Earnings and Revenue History October 4, 2024
A closer look at Alpha Real Estate Services’ earnings
One of the key financial ratios used to measure how well a company converts its profits into free cash flow (FCF) is the accrual ratio. The accrual ratio subtracts FCF from earnings for a particular period and divides the result by the company’s average operating assets for that period. This ratio indicates how much of a company’s profits are not backed by free cash flow.
So a negative accrual rate is a good thing. Because it shows that a company is bringing in more free cash flow than it shows in profits. This does not suggest that you need to worry about positive accruals, but it is worth noting if the accruals are fairly high. In particular, there is some academic evidence to suggest that, generally speaking, high accrual rates bode poorly for short-term profits.
Alpha Real Estate Services’ accrual ratio for the year ending June 2024 is -0.28. This suggests that the company’s free cash flow significantly exceeds its statutory profit. In fact, its free cash flow of €12m last year was much higher than its statutory profit of €2.17m. Given that Alpha Real Estate Services had negative free cash flow in the prior year period, the trailing twelve month result of €12m seems to be a step in the right direction. However, that’s not the only thing to consider. The accrual rate reflects, at least in part, the impact of unusual items on statutory profit.
Note: Investors are always advised to check the strength of the balance sheet. Click here to see Alpha Real Estate Services’ balance sheet analysis.
How do unusual items affect profits?
Alpha Real Estate Services’ profits were reduced by unusual items worth €1.5 million over the past 12 months, which helped generate the company’s high conversion rate, as reflected in the unusual items. . This is what you would expect if a company were charging non-cash fees to reduce paper profits. It’s never great to see a rare item hurt a company’s profits, but on the positive side, things may improve sooner or later. Our analysis of the majority of publicly traded companies around the world shows that significant anomalies often do not repeat themselves. This is not surprising since these line items are considered rare. In the twelve months to June 2024, Alpha Real Estate Services had significant unusual expenditure. All else being equal, this can have the effect of making the statutory profit look worse than its underlying earning power.
Our Take on Alpha Real Estate Services’ Earnings Performance
In conclusion, both Alpha Real Estate Services’ accrual ratio and its unusual items suggest that its statutory profit is likely quite conservative. All things considered, Alpha Real Estate Services’ statutory profit likely understates its earnings potential. With this in mind, you should not consider investing in stocks unless you fully understand the risks. Every company has risks. We’ve discovered 4 warning signs for Alpha Real Estate Services (2 of which make us uncomfortable!) you should know about.
In our Alpha Real Estate Services research, we focused on certain factors that could make its earnings look better than they actually are. And it passed with flying colors. But if you can focus your attention on the details, there is always more to discover. Some consider a high return on equity to be a good sign of a high-quality business. So you might wish to see this free collection of companies with 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 using only unbiased methodologies, based on historical data and analyst forecasts, and articles are not intended to be financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.
