Intrum’s (STO: INTRUM) revenue is of questionable quality

Despite strong earnings, the Intrum AB (pub) (STO: INTRUM) the stock hasn’t moved much. Our analysis suggests that this could be because shareholders noticed some underlying factors of concern.

Discover our latest analysis for Intrum

OM: INTRUM Revenue and Revenue History October 29, 2021

Operating revenue or not?

Companies will classify their sources of income as operating income or other income. Generally speaking, operating income is a more reliable guide to the sustainable income generation capacity of the business. However, we note that when non-operating income suddenly increases, it sometimes generates an unsustainable increase in profit. It should be noted that Intrum has seen a sharp increase in its non-operating revenue over the past year. Indeed, its non-operating revenue has grown from SEK 6.06 billion last year to SEK 8.20 billion this year. High levels of non-operating income are problematic because if (and when) they are not repeated, then the overall revenues (and profitability) of the business will fall. In order to better understand the bottom line of a business, it can sometimes be useful to consider whether the bottom line would be very different without a sharp increase in non-operating revenue.

This might make you wonder what analysts are predicting in terms of future profitability. Fortunately, you can click here to see an interactive graph depicting future profitability, based on their estimates.

Our take on Intrum’s profit performance

Given that Intrum has seen a sharp increase in its non-operating revenue over the past twelve months, we would be very careful not to rely too heavily on the statutory profit figure, which would have benefited from this potentially unsustainable change. For this reason, we believe that Intrum’s statutory earnings may be a poor indicator of its underlying earnings power and could give investors an overly positive impression of the company. On the bright side, the company has shown enough improvement to make a profit this year, after losing money last year. Of course, we’ve only scratched the surface when it comes to analyzing his income; one could also consider margins, growth forecasts and return on investment, among other factors. So while the quality of the benefits is important, it is just as important to consider the risks that Intrum is currently facing. At Simply Wall St, we found 1 warning sign for Intrum and we think they deserve your attention.

Today, we zoomed in on a single data point to better understand the nature of Intrum’s benefits. But there is always more to be discovered if you are able to focus your mind on the smallest details. For example, many people see a high return on equity as an indication of a favorable business economy, while others like to “follow the money” and look for stocks that insiders are buying. So you might want to see this free a set of companies with a high return on equity, or that list of stocks that insiders buy.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative material. Simply Wall St has no position in the mentioned stocks.

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