The most recent earnings announcement Victrex plc’s (LON:VCT) released in September 2018 showed that the company experienced a strong tailwind, leading to a double-digit earnings growth of 11%. Investors may find it useful to understand how market analysts view Victrex’s earnings growth trajectory over the next couple of years and whether the future looks even brighter than the past. 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.
Market analysts’ consensus outlook for the coming year seems pessimistic, with earnings reducing by -1.8%. But in the following year, there is a complete contrast in performance, with reaching double digit 4.2% compared to today’s level and continues to increase to UK£121m in 2022.
Although it’s informative understanding the rate of growth year by year relative to today’s level, it may be more insightful estimating the rate at which the earnings are growing on average every year. The pro of this technique is that we can get a better picture of the direction of Victrex’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 the forecasted earnings by market analysts. The slope of this line is the rate of earnings growth, which in this case is 3.2%. This means that, we can expect Victrex will grow its earnings by 3.2% every year for the next few years.
For Victrex, I’ve compiled three essential 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 VCT 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 VCT is currently mispriced by the market.
- Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of VCT? 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.