The Character Group plc’s (LON:CCT) latest earnings update in August 2018 showed that the company experienced a minor headwind with earnings falling from UK£10m to UK£9.6m, a change of -4.4%. Investors may find it useful to understand how market analysts predict Character Group’s earnings growth trajectory over the next couple of years and whether the future looks brighter. I will be looking at earnings excluding extraordinary items to exclude one-off activities to get a better understanding of the underlying drivers of earnings.
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Analysts’ outlook for next year seems optimistic, with earnings rising by a robust 10%. This growth seems to continue into the following year with rates reaching double digit 18% compared to today’s earnings, and finally hitting UK£11m by 2022.
Although it is helpful to be aware of the growth each year relative to today’s figure, it may be more valuable to estimate the rate at which the earnings are growing on average every year. The benefit of this technique is that we can get a better picture of the direction of Character Group’s earnings trajectory over the long run, irrespective of near term fluctuations, which may be more relevant for long term investors. To calculate this rate, I put a line of best fit through analyst consensus of forecasted earnings. The slope of this line is the rate of earnings growth, which in this case is 5.9%. This means that, we can expect Character Group will grow its earnings by 5.9% every year for the next couple of years.
Next Steps:
For Character Group, there are three pertinent aspects 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 CCT 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 CCT is currently mispriced by the market.
- Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of CCT? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.