When companies post strong earnings, the stock generally performs well, just like EverQuote, Inc.'s (NASDAQ:EVER) stock has recently. Our analysis found some more factors that we think are good for shareholders.

See our latest analysis for EverQuote

A Closer Look At EverQuote's Earnings

One key financial ratio used to measure how well a company converts its profit to free cash flow (FCF) is the accrual ratio. 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.

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. While it's not a problem to have a positive accrual ratio, indicating a certain level of non-cash profits, a high accrual ratio is arguably a bad thing, because it indicates paper profits are not matched by cash flow. 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 September 2024, EverQuote had an accrual ratio of -0.73. Therefore, its statutory earnings were very significantly less than its free cashflow. In fact, it had free cash flow of US$42m in the last year, which was a lot more than its statutory profit of US$13.5m. Given that EverQuote had negative free cash flow in the prior corresponding period, the trailing twelve month resul of US$42m 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 EverQuote's Profit Performance

Happily for shareholders, EverQuote produced plenty of free cash flow to back up its statutory profit numbers. Based on this observation, we consider it possible that EverQuote's statutory profit actually understates its earnings potential! And one can definitely find a positive in the fact that it made a profit this year, despite losing money 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. In terms of investment risks, we've identified 1 warning sign with EverQuote, and understanding this should be part of your investment process.