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In December 2018, GWA Group Limited (ASX:GWA) released its earnings update. Generally, analysts seem fairly confident, with earnings expected to grow by 31% in the upcoming year compared with the past 5-year average growth rate of 20%. With trailing-twelve-month net income at current levels of AU$50m, we should see this rise to AU$66m in 2020. Below is a brief commentary on the longer term outlook the market has for GWA Group. Investors wanting to learn more about other aspects of the company should research its fundamentals here.
Can we expect GWA Group to keep growing?
The longer term view from the 7 analysts covering GWA is one of negative sentiment. Broker analysts tend to forecast up to three years ahead due to a lack of clarity around the business trajectory beyond this. To understand the overall trajectory of GWA’s earnings growth over these next fews years, I’ve fitted a line through these analyst earnings forecast to determine an annual growth rate from the slope.
This results in an annual growth rate of -7.8% based on the most recent earnings level of AU$50m to the final forecast of AU$59m by 2022. However, if we exclude extraordinary items from earnings, we see that the profits is predicted to rise over time, resulting in an EPS of A$0.23 in the final year of forecast compared to the current A$0.19 EPS today. The bottom-line decline seems to be caused by cost outpacing top line growth of 8.0% over the next few years. Furthermore, the current 14% margin is expected to contract to 12% by the end of 2022.
Future outlook is only one aspect when you’re building an investment case for a stock. For GWA Group, there are three key factors you should further examine:
- 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.
- Valuation: What is GWA Group 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 GWA Group is currently mispriced by the market.
- Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of GWA Group? 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 firstname.lastname@example.org. 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.