Gear4music (Holdings) plc’s (LON:G4M) latest earnings announcement in February 2018 signalled that the company experienced a significant headwind with earnings declining by -40.10%. Below is my commentary, albeit very simple and high-level, on how market analysts view Gear4music (Holdings)’s earnings growth outlook over the next few years and whether the future looks brighter. 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 the upcoming year seems optimistic, with earnings growing by a significant 59.09%. This strong growth in earnings is expected to continue, bringing the bottom line up to UK£3.80m by 2021.
Although it’s useful to understand the rate of growth each year relative to today’s figure, it may be more valuable to evaluate the rate at which the earnings are moving every year, on average. The benefit of this approach is that we can get a better picture of the direction of Gear4music (Holdings)’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 32.06%. This means that, we can assume Gear4music (Holdings) will grow its earnings by 32.06% every year for the next few years.
For Gear4music (Holdings), there are three important 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 G4M 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 G4M is currently mispriced by the market.
- Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of G4M? 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.