Will Ritchie Bros Auctioneers Incorporated’s (TSX:RBA) Earnings Grow Over The Next Year?

Ritchie Bros Auctioneers Incorporated (TSX:RBA) is expected to grow its earnings 39.3% over the next year. Are you considering investing? Then keep reading. In this article we will look at the latest data and analyse the future performance of this growth stock in more detail. Check out our latest analysis for Ritchie Bros. Auctioneers

How is RBA going to perform in the future?

Analysts are predicting good growth prospects for Ritchie Bros. Auctioneers over the next three years. We are expecting to see the earnings grow around 90.1% and earnings per share estimates range from $1.2 to $1.85.

Ritchie Bros. Auctioneers (TSX:RBA) Past Future Earnings May 4th 17
Ritchie Bros. Auctioneers (TSX:RBA) Past Future Earnings May 4th 17
This will project the annual earnings to levels above what has been seen in the past few years.

In the same period we are supposed to see the revenue grow from $566 Million to $663 Million in 2019 and profit is predicted to rise from $91 Million to $154 Million in 2018, roughly growing 1.7x. Margins are predicted to be extremely healthy during this time as well.

Is the growth built on solid basis?

Ritchie Bros. Auctioneers has underperformed the average growth in earnings of the Commercial Services industry over the past year.

Whilst RBA’s Return on Equity of 13.1% isn’t horrific, it means that the company has underperformed the Commercial Services industry average of 25.71%. The level is expected to rise in 3 years time to a very attractive ROE of 21.4%.

Ritchie Bros. Auctioneers (TSX:RBA) Future Perf May 4th 17
Ritchie Bros. Auctioneers (TSX:RBA) Future Perf May 4th 17

Return on equity (ROE) is a measure of how much profit (net income) a company makes as a percentage of the shareholders equity. Equity is made up of funds from the original issuing of shares and any retained earnings from previous financial years. It varies considerably across sectors, for this reason it is important to asses a stocks ROE relative to its industry. Whilst it is true that the higher the ROE the better the company is performing, ROE does have a weakness. A stock with a disproportionate amount of debt can lead to a small equity base. Thus, a small amount of net income (the numerator) could still produce a high ROE off a modest equity base (the denominator). For this reason investors should always consider the debt situation in conjunction with ROE.

Conclusion

Ritchie Bros. Auctioneers is a fast growing company, but as Warren Buffett’s right-hand man Charlie Munger said, “No matter how wonderful a business is, it’s not worth an infinite price“. Is RBA overpriced? Or could it be considered an undervalued opportunity? I recommend you see our latest FREE analysis to find out!

If you are not interested in RBA anymore, you can use our free platform to see my list of over 150 other stocks with a high growth potential.