What Should Investors Know About Adairs Limited’s (ASX:ADH) Growth?

The latest earnings announcement Adairs Limited (ASX:ADH) released in July 2018 indicated that the company experienced a robust tailwind, eventuating to a double-digit earnings growth of 45%. Below, I’ve laid out key numbers on how market analysts predict Adairs’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.

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Analysts’ expectations for this coming year seems rather subdued, with earnings increasing by a single digit 9.4%. The growth outlook in the following year seems much more buoyant with rates arriving at double digit 20% compared to today’s earnings, and finally hitting AU$39m by 2022.

ASX:ADH Future Profit January 20th 19
ASX:ADH Future Profit January 20th 19

Even though it is informative knowing the growth each year relative to today’s figure, it may be more valuable analyzing the rate at which the business is moving every year, on average. The pro of this method is that we can get a better picture of the direction of Adairs’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 8.5%. This means, we can expect Adairs will grow its earnings by 8.5% every year for the next couple of years.

Next Steps:

For Adairs, I’ve compiled three important aspects you should further examine:

  1. 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.
  2. Valuation: What is ADH 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 ADH is currently mispriced by the market.
  3. Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of ADH? 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.