In June 2018, RedHill Education Limited (ASX:RDH) announced its most recent earnings update, which confirmed that the company experienced a substantial tailwind, more than doubling its earnings from the prior year. Below is a brief commentary on my key takeaways on how market analysts perceive RedHill Education's earnings growth trajectory over the next few years and whether the future looks even brighter than the past. I will be using net income excluding extraordinary items in order to exclude one-off volatility which I am not interested in.
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Market analysts' prospects for the coming year seems optimistic, with earnings expanding by a robust 11%. This growth seems to continue into the following year with rates arriving at double digit 44% compared to today’s earnings, and finally hitting AU$6.0m by 2022.
While it is useful to be aware of the growth rate each year relative to today’s value, it may be more valuable gauging the rate at which the business is growing on average every year. The pro of this approach is that it removes the impact of near term flucuations and accounts for the overarching direction of RedHill Education's earnings trajectory over time, which may be more relevant for long term investors. To calculate 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 20%. This means that, we can presume RedHill Education will grow its earnings by 20% every year for the next few years.
Next Steps:
For RedHill Education, I've put together 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 RDH 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 RDH is currently mispriced by the market.
- Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of RDH? 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 editorial-team@simplywallst.com.
Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.