The latest earnings announcement Think Childcare Limited (ASX:TNK) released in December 2018 indicated that the business endured a immense headwind with earnings falling by -14%. Below is my commentary, albeit very simple and high-level, on how market analysts perceive Think Childcare’s earnings growth outlook over the next few years and whether the future looks brighter. I will be using net income excluding extraordinary items in order to exclude one-off volatility which I am not interested in.
Analysts’ expectations for this coming year seems optimistic, with earnings climbing by a robust 45%. This growth seems to continue into the following year with rates reaching double digit 94% compared to today’s earnings, and finally hitting AU$12m by 2022.
While it’s useful to be aware of the growth year by year relative to today’s figure, it may be more insightful estimating the rate at which the company is rising or falling every year, on average. The benefit of this technique is that we can get a better picture of the direction of Think Childcare’s earnings trajectory over the long run, irrespective of near term fluctuations, which may be more relevant for long term investors. To calculate this rate, I’ve inserted 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 27%. This means, we can anticipate Think Childcare will grow its earnings by 27% every year for the next couple of years.
For Think Childcare, I’ve compiled three key aspects 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 TNK 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 TNK is currently mispriced by the market.
- Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of TNK? 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.