As analysts expect Getlink SE. (ENXTPA:GET) to record robust earnings growth of 29.25% in the coming year, let’s stop and consider this strong vision. Those invested in the stock should contemplate the factors that are spurring this projected increase, because the sustainability of returns to shareholders can be impacted on in different ways. To get a preliminary understanding, this article will interpret Getlink’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 GET’s returns relative to its competitors.See our latest analysis for Getlink
Understanding GET’s earnings with 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 GET’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 GET
Profit Margin = Net Income ÷ Revenue
∴ Profit Margin = 107.82 Million ÷ 1.03 Billion = 10.44%
Getlink’s margin has expanded in the past five years, due to 29.52% in average net income growth outstripping a 2.30% average growth in revenue, indicating that that the previous revenue growth has been acompanied by a growing portion translated in to earnings. The current 10.44% margin seems to continue this movement, indicating that earnings growth has likely been driven through improved cost management alongside the benefits of revenue growth.
Using Getlink’s margin expectations as a way to understand projections for the future
Margins are expected to keep on expanding, with an expectation of 4.84% in annual revenue growth and annual net income growth forecasted at 22.94%. 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. However, investors should realise margin expansion can hold various implications on the company’s performance depending on how it operates, which makes further research very important. In many situations, looking at a company’s profit margin in relation to other similar businesses can be more informative. For Getlink in particular, profit margins moving forward are forecasted to expand along with the margins in the Infrastructure industry, and at the same time, GET’s projected ROE of 8.08% is less than the 11.30% expected ROE for the rest of industry. This serves as an indication that analysts covering the stock expect the nature of Getlink’s earnings will produce a lower return per dollar of equity compared to the industry. However, margins use items on the income statement that are prone to being manipulated by various accounting measures, which can distort our analysis. Thus, it is essential to run your own analysis on Getlink’s future earnings whilst maintaining a watchful eye over the sustainability of their cost management methods and the runway for top line growth.
For GET, there are three pertinent factors 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 GET 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 GET is currently mispriced by the market.
- Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of GET? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!