The most recent earnings release McMillan Shakespeare Limited’s (ASX:MMS) announced in August 2019 confirmed that the company gained from a robust tailwind, eventuating to a double-digit earnings growth of 27%. Below is my commentary, albeit very simple and high-level, on how market analysts view McMillan Shakespeare’s earnings growth outlook over the next couple of years and whether the future looks even brighter than the past. Note that I will be looking at net income excluding extraordinary items to get a better understanding of the underlying drivers of earnings.
Analysts’ outlook for the upcoming year seems buoyant, with earnings rising by a robust 44%. This growth seems to continue into the following year with rates reaching double digit 57% compared to today’s earnings, and finally hitting AU$109m by 2022.
Although it’s helpful to be aware of the growth rate year by year relative to today’s figure, it may be more beneficial to estimate the rate at which the earnings are rising or falling every year, on average. The benefit of this approach 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 the forecasted earnings by market analysts. The slope of this line is the rate of earnings growth, which in this case is 18%. This means, we can expect McMillan Shakespeare will grow its earnings by 18% every year for the next few years.
For McMillan Shakespeare, there are three pertinent 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!
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 email@example.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.