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In June 2018, Dechra Pharmaceuticals PLC (LON:DPH) announced its most recent earnings update, which confirmed that the company gained from a strong tailwind, leading to a double-digit earnings growth of 38%. Today I want to provide a brief commentary on how market analysts perceive Dechra Pharmaceuticals’s earnings growth trajectory over the next couple of 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.
Market analysts’ consensus outlook for next year seems rather subdued, with earnings growing by a single digit 6.7%. The growth outlook in the following year seems much more positive with rates arriving at double digit 47% compared to today’s earnings, and finally hitting UK£67m by 2022.
While it is useful to understand the rate of growth year by year relative to today’s level, it may be more insightful evaluating the rate at which the earnings are moving every year, on average. The pro of this approach is that it ignores near term flucuations and accounts for the overarching direction of Dechra Pharmaceuticals’s earnings trajectory over time, which may be more relevant for long term investors. To compute 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 22%. This means that, we can anticipate Dechra Pharmaceuticals will grow its earnings by 22% every year for the next few years.
For Dechra Pharmaceuticals, there are 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 DPH 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 DPH is currently mispriced by the market.
- Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of DPH? 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 email@example.com.