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On 31 December 2018, Software Aktiengesellschaft (ETR:SOW) released its most recent earnings update. Generally, it seems that analyst forecasts are fairly bearish, with earnings expected to decline by -1.9% in the upcoming year against the past 5-year average growth rate of 5.9%. Currently with a trailing-twelve-month profit of €165m, the consensus growth rate suggests that earnings will drop to €162m by 2020. In this article, I’ve outline a few earnings growth rates to give you a sense of the market sentiment for Software in the longer term. Investors wanting to learn more about other aspects of the company should research its fundamentals here.
Exciting times ahead?
The longer term view from the 17 analysts covering SOW is one of positive sentiment. Generally, broker analysts tend to make predictions for up to three years given the lack of visibility beyond this point. 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.
By 2022, SOW’s earnings should reach €182m, from current levels of €165m, resulting in an annual growth rate of 3.9%. This leads to an EPS of €2.34 in the final year of projections relative to the current EPS of €2.23. This high rate of growth of revenue squeezes margins, as analysts predict an upcoming margin contraction from the current 19% to 19% by the end of 2022.
Future outlook is only one aspect when you’re building an investment case for a stock. For Software, there are three important 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 Software 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 Software is currently mispriced by the market.
- Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Software? 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 firstname.lastname@example.org.