NH Hotel Group SA (BME:NHH): What Is Driving Earnings Margins?

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.

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.

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.

Next Steps:

For NHH, I've put together three relevant aspects 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 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.
3. 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!

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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.