The latest earnings update McMillan Shakespeare Limited (ASX:MMS) released in June 2018 revealed that the company endured a immense headwind with earnings declining by -26%. Below, I’ve laid out key growth figures on how market analysts perceive McMillan Shakespeare’s earnings growth outlook over the next few years and whether the future looks brighter. I will be looking at earnings excluding extraordinary items to exclude one-off activities to get a better understanding of the underlying drivers of earnings.
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Market analysts’ prospects for the upcoming year seems positive, with earnings climbing by a significant 93%. This strong growth in earnings is expected to continue, bringing the bottom line up to AU$121m by 2022.
Although it’s helpful to understand the growth year by year relative to today’s level, it may be more insightful gauging the rate at which the company is growing every year, on average. The benefit of this technique is that it removes the impact of near term flucuations and accounts for the overarching direction of McMillan Shakespeare’s earnings trajectory over time, 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 21%. This means, we can expect McMillan Shakespeare will grow its earnings by 21% every year for the next couple of years.
For McMillan Shakespeare, there are three fundamental 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 MMS 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 MMS is currently mispriced by the market.
- Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of MMS? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at email@example.com.