Australian Finance Group Limited (ASX:AFG): Will The Growth Last?

Australian Finance Group Limited’s (ASX:AFG) announced its latest earnings update in August 2019, which indicated that the business faced a slight headwind with earnings deteriorating from AU$33m to AU$33m, a change of -0.9%. Below is a brief commentary on my key takeaways on how market analysts view Australian Finance Group’s earnings growth trajectory over the next couple of years and whether the future looks brighter. Note that I will be looking at net income excluding extraordinary items to get a better understanding of the underlying drivers of earnings.

View our latest analysis for Australian Finance Group

Analysts’ outlook for the upcoming year seems rather muted, with earnings increasing by a single digit 0.4%. The following year doesn’t look much more exciting, though earnings does reach AU$40m in 2022.

ASX:AFG Past and Future Earnings, August 26th 2019
ASX:AFG Past and Future Earnings, August 26th 2019

Although it’s helpful to understand the growth each year relative to today’s level, it may be more valuable to analyze the rate at which the earnings are rising or falling on average every year. The advantage of this approach is that we can get a better picture of the direction of Australian Finance Group’s earnings trajectory over the long run, irrespective of near term fluctuations, which may be more relevant for long term investors. To compute this rate, I put a line of best fit through analyst consensus of forecasted earnings. The slope of this line is the rate of earnings growth, which in this case is 6.3%. This means that, we can anticipate Australian Finance Group will grow its earnings by 6.3% every year for the next few years.

Next Steps:

For Australian Finance Group, I’ve compiled three pertinent aspects you should further research:

  1. Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
  2. Valuation: What is AFG worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether AFG is currently mispriced by the market.
  3. Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of AFG? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.