What Do Investors Need To Know About ElringKlinger AG’s (FRA:ZIL2) Growth?

Looking at ElringKlinger AG’s (FRA:ZIL2) earnings update in September 2018, analyst forecasts seem bearish, with earnings expected to decline by -15% in the upcoming year. However, this pessimism is not unfounded, given the 5-year track record of negative growth. Presently, with latest-twelve-month earnings at €70m, we should see this fall to €60m by 2020. I will provide a brief commentary around the figures and analyst expectations in the near term. Readers that are interested in understanding the company beyond these figures should research its fundamentals here.

View our latest analysis for ElringKlinger

How is ElringKlinger going to perform in the near future?

Longer term expectations from the 14 analysts covering ZIL2’s stock is one of positive sentiment. Since forecasting becomes more difficult further into the future, broker analysts generally project out to around three years. To reduce the year-on-year volatility of analyst earnings forecast, I’ve inserted a line of best fit through the expected earnings figures to determine the annual growth rate from the slope of the line.

DB:ZIL2 Past and Future Earnings, April 1st 2019
DB:ZIL2 Past and Future Earnings, April 1st 2019

From the current net income level of €70m and the final forecast of €68m by 2022, the annual rate of growth for ZIL2’s earnings is 3.0%. However, if we exclude extraordinary items from net income, we see that earnings is projected to fall over time, resulting in an EPS of €0.95 in the final year of forecast compared to the current €1.1 EPS today. Analysts are predicting this high revenue growth to squeeze profit margins over time, from 4.2% to 3.6% by the end of 2022.

Next Steps:

Future outlook is only one aspect when you’re building an investment case for a stock. For ElringKlinger, I’ve put together three pertinent factors you should look at:

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