The latest earnings announcement South32 Limited (ASX:S32) released in September 2019 revealed that the company endured a substantial headwind with earnings declining by -71%. Investors may find it useful to understand how market analysts perceive South32's earnings growth trajectory over the next few years and whether the future looks brighter. Note that I will be looking at net income excluding extraordinary items to get a better understanding of the underlying drivers of earnings.
Check out our latest analysis for South32
Analysts' expectations for the upcoming year seems optimistic, with earnings expanding by a significant 98%. This strong growth in earnings is expected to continue, bringing the bottom line up to US$927m by 2022.
Although it is helpful to be aware of the growth rate each year relative to today’s value, it may be more insightful to determine the rate at which the earnings are rising or falling on average every year. The pro of this technique is that we can get a better picture of the direction of South32's earnings trajectory over the long run, irrespective of near term fluctuations, which may be more relevant for long term investors. To compute this rate, I've appended 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 15%. This means that, we can presume South32 will grow its earnings by 15% every year for the next couple of years.
Next Steps:
For South32, there are three relevant 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 S32 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 S32 is currently mispriced by the market.
- Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of S32? 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 editorial-team@simplywallst.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.