What Is Driving Aubay Société Anonyme's (EPA:AUB) Margins In The Future?

As analysts project Aubay Société Anonyme (ENXTPA:AUB) to produce noticeable earnings growth of 16.10% in the coming year, it's important to take a step back and consider this strong vision. It is crucial for investors to do this, so they can judge the underlying components responsible for driving this projected increase, as there are certain implications that can impact on shareholder return. To get a preliminary understanding, this article will interpret Aubay Société Anonyme's margin performance 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.

See our latest analysis for Aubay Société Anonyme

What does AUB's profit margin tell us?

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 AUB's profit margin, we can take a closer look at this ability and use it to understand what is driving earnings growth.

Aubay Société Anonyme's margin has expanded in the past five years, due to a 22.42% average growth in net income exceeding average revenue growth of 11.56%, which means that the previous increase in revenue has coincided with a larger portion falling to the bottom line. AUB's most recent margin of 6.77% appears to follow this trend, which could imply improved cost efficiency as well as increasing revenue contributed to the previous earnings growth.

What can we tell from future expectations?

Margins are expected to keep on expanding, with an expectation of 7.84% in annual revenue growth and annual net income growth forecasted at 10.88%. 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 interested in the company should remember that margin expansion can hold various implications on the company's performance depending on how it operates, which makes further research very important.

Profit margins are commonly useful when employed as a comparitive measure to judge a business' profit-making ability against its industry. For Aubay Société Anonyme in particular, it is expected that profit margins will expand along with the IT industry margins, and at the same time, AUB’s forecasted ROE of 17.58% exceeds that of the expected 13.65% ROE of the industry (note that this observation is also influenced by relative debt levels). This serves as an indication of the confidence amongst analysts covering that stock that the nature of Aubay Société Anonyme's earnings will result in a higher return per dollar of equity compared 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 Aubay Société Anonyme's future earnings whilst maintaining a watchful eye over the sustainability of their cost management methods and the runway for top line growth.

Next Steps:

For AUB, I've compiled three essential factors you should further research:

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