As analysts project NH Hotel Group SA (BME:NHH) to record noticeable earnings growth of 12.44% in the coming year, it’s necessary to take a moment and think through this encouraging sentiment. Investors should consider the forces that are spurring this growth, as the return realised by shareholders may look different in the future if underlying assumptions are not realised. To get a preliminary understanding, I will shine a light on the behaviour of NH Hotel Group’s margins so investors can evaluate the revenue and cost drivers behind future earnings projections and understand how they may impact on returns compared to the industry.Check out our latest analysis for NH Hotel Group
Understanding NHH’s earnings with profit margin
Attractive margins generally indicate a desirable ability to translate sales revenue in to earnings, and return for shareholders. By calculating NHH’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 NHH
Profit Margin = Net Income ÷ Revenue
∴ Profit Margin = €82.01m ÷ €1.56b = 5.25%
There has been an expansion in NH Hotel Group’s margin over the past five years, with 33.22% in average net income growth exceeding 2.70% in average revenue growth, which means that the previous increase in revenue has coincided with a larger portion falling to the bottom line. NHH’s most recent margin of 5.25% appears to follow this trend, indicating that earnings growth has likely been driven through improved cost management alongside the benefits of revenue growth.
What does NH Hotel Group’s margin expectation tell us about future earnings?
Based on future expectations, NHH’s profit margin will keep on expanding, with 4.67% in expected annual revenue growth and a forecasted 18.86% in annual net income growth. 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. Nonetheless, those interested in the company should remember that margin expansion has different impacts on profit and return depending on the underlying situation, which reinforces the importance of deeper research.
For NHH, I’ve put together three relevant aspects you should look at:
- 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 NHH 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 NHH is currently mispriced by the market.
- Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of NHH? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!