Morses Club PLC (LON:MCL): Will The Growth Last?

Morses Club PLC’s (LON:MCL) announced its latest earnings update in February 2019, which confirmed that the business benefited from a robust tailwind, leading to a double-digit earnings growth of 24%. Below is my commentary, albeit very simple and high-level, on how market analysts view Morses Club’s earnings growth outlook over the next few years and whether the future looks even brighter than the past. I will be using net income excluding extraordinary items in order to exclude one-off volatility which I am not interested in.

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Check out our latest analysis for Morses Club

Analysts’ expectations for next year seems rather subdued, with earnings expanding by a single digit 7.1%. The growth outlook in the following year seems much more positive with rates reaching double digit 29% compared to today’s earnings, and finally hitting UK£21m by 2022.

AIM:MCL Past and Future Earnings, May 23rd 2019
AIM:MCL Past and Future Earnings, May 23rd 2019

Even though it’s informative knowing the growth year by year relative to today’s value, it may be more valuable to gauge the rate at which the business is rising or falling on average every year. The advantage of this approach is that we can get a bigger picture of the direction of Morses Club’s earnings trajectory over the long run, irrespective of near term fluctuations, which may be more relevant for long term investors. To compute this rate, I’ve appended 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 11%. This means that, we can expect Morses Club will grow its earnings by 11% every year for the next few years.

Next Steps:

For Morses Club, there are three key aspects you should further examine:

  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 MCL 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 MCL is currently mispriced by the market.
  3. Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of MCL? 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 editorial-team@simplywallst.com. 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.