On 31 December 2018, Estia Health Limited (ASX:EHE) released its most recent earnings update. Generally, analyst consensus outlook appear bearish, with earnings expected to decline by -0.8% in the upcoming year relative to the past 5-year average growth rate of 57%. With trailing-twelve-month net income at current levels of AU$41m, the consensus growth rate suggests that earnings will decline to AU$41m by 2020. I will provide a brief commentary around the figures and analyst expectations in the near term. For those interested in more of an analysis of the company, you can research its fundamentals here.
What can we expect from Estia Health in the longer term?
Longer term expectations from the 6 analysts covering EHE’s stock is one of positive sentiment. Given that it becomes hard to forecast far into the future, broker analysts tend to project ahead roughly three years. I’ve plotted out each year’s earnings expectations and inserted a line of best fit to calculate an annual growth rate from the slope in order to understand the overall trajectory of EHE’s earnings growth over these next few years.
This results in an annual growth rate of 2.4% based on the most recent earnings level of AU$41m to the final forecast of AU$43m by 2022. This leads to an EPS of A$0.17 in the final year of projections relative to the current EPS of A$0.16. This high rate of growth of revenue squeezes margins, as analysts predict an upcoming margin contraction from the current 7.5% to 6.6% by the end of 2022.
Future outlook is only one aspect when you’re building an investment case for a stock. For Estia Health, there are three fundamental 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 Estia Health 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 Estia Health is currently mispriced by the market.
- Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Estia Health? 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.