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After Persimmon Plc’s (LON:PSN) recent earnings announcement in December 2018, the consensus outlook from analysts appear bearish, as a 6.0% fall in profits is expected in the upcoming year relative to the past 5-year average growth rate of 22%. With trailing-twelve-month net income at current levels of UK£886m, the consensus growth rate suggests that earnings will decline to UK£833m by 2020. Below is a brief commentary around Persimmon’s earnings outlook going forward, which may give you a sense of market sentiment for the company. For those keen to understand more about other aspects of the company, you can research its fundamentals here.
Can we expect Persimmon to keep growing?
The 14 analysts covering PSN view its longer term outlook with a negative sentiment. Since forecasting becomes more difficult further into the future, broker analysts generally project out to around three years. To understand the overall trajectory of PSN’s earnings growth over these next fews years, I’ve fitted a line through these analyst earnings forecast to determine an annual growth rate from the slope.
From the current net income level of UK£886m and the final forecast of UK£846m by 2022, the annual rate of growth for PSN’s earnings is -1.7%. EPS reaches £2.73 in the final year of forecast compared to the current £2.83 EPS today. Contraction in the bottom line seems to suggest cost growth exceeding top-line growth of 1.6% in the next three years. With this high cost growth, margins is expected to contract from 24% to 22% by the end of 2022.
Future outlook is only one aspect when you’re building an investment case for a stock. For Persimmon, there are three fundamental factors 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 Persimmon 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 Persimmon is currently mispriced by the market.
- Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Persimmon? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.