With analysts projecting Aktieselskabet Schouw & Co (CPSE:SCHO) to register robust earnings growth of 13.40% over the next year, it’s necessary to take a moment and evaluate this strong vision. Investors should consider the forces that are driving this projected increase, as the return realised by shareholders may look different in the future if underlying assumptions are not realised. To help investors get a top level understanding, this article will interpret Aktieselskabet Schouw’s margin performance to help recognise the underlying make-up of revenue and expenses that is responsible for driving future earnings expectations and what it means for SCHO’s returns relative to its competitors.Check out our latest analysis for Aktieselskabet Schouw
Breaking Down SCHO’s Profit Margin
In general, the value that accrues to equity holders is partly reliant on the ability of a company to convert sales revenue in to earnings. By calculating SCHO’s profit margin, we can take a closer look at this ability and use it to understand what is driving earnings growth.
Margin Calculation for SCHO
Profit Margin = Net Income ÷ Revenue
∴ Profit Margin = 874.30 Million ÷ 17.30 Billion = 5.05%
The past five years have seen Aktieselskabet Schouw’s margin expand, due to 25.71% in average net income growth outstripping average revenue growth of 6.78%, indicating that that the previous revenue growth has been acompanied by a growing portion translated in to earnings. The current 5.05% margin seems to continue this movement, which suggests that the increase in net income has likely occurred from a combination of enhanced cost efficiency as well as top line growth.
Using Aktieselskabet Schouw’s margin expectations as a way to understand projections for the future
Margins are expected to keep on expanding, with annual revenue growth tipped at 5.10% and 9.25% earnings growth expected annually. This suggests future earnings growth is driven further by enhanced cost efficiency alongside revenue increases, which is enlarging the incremental amount of net income that is retained from the forecasted revenue growth. Despite this, those watching the stock must know margin expansion can mean different things for different companies, thus more detailed research is essential. Generally, it is useful to judge profit margin and its implication on return in comparison to other companies who share similar traits. For SCHO, it is expected that profit margins will expand along with the margins in the Food industry, and at the same time, SCHO’s forecasted ROE and the expected ROE of the industry is roughly equal at 11.22% and 11.15% respectively (note that relative debt levels need to be considered in this observation). This serves as an indication that analysts covering the stock expect the nature of Aktieselskabet Schouw’s earnings will result in a return per dollar of equity that is similar to the industry. But before moving forward, it must be remembered that bottom line earnings and profit margins are susceptible to being manipulated and don’t always give the full picture. Thus, it is essential to run your own analysis on Aktieselskabet Schouw’s future earnings whilst maintaining a watchful eye over the sustainability of their cost management methods and the runway for top line growth.
For SCHO, I’ve compiled 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 SCHO 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 SCHO is currently mispriced by the market.
- Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of SCHO? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!