Avast Plc (LON:AVST): Is It A Good Long Term Opportunity?

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Avast Plc’s (LON:AVST) most recent earnings update in December 2018 confirmed that the business turned profitable again after experiencing negative earnings in the last financial year. Below is my commentary, albeit very simple and high-level, on how market analysts predict Avast’s earnings growth outlook over the next couple of years and whether the future looks brighter. Note that I will be looking at net income excluding extraordinary items to get a better understanding of the underlying drivers of earnings.

View our latest analysis for Avast

Market analysts’ prospects for the upcoming year seems pessimistic, with earnings falling by a double-digit -18%. However, the next few years seem to illustrate a completely different picture, with expected earnings growth rates reaching double digit 10% compared to today’s level and continues to increase.

LSE:AVST Past and Future Earnings, June 7th 2019
LSE:AVST Past and Future Earnings, June 7th 2019

While it is useful to be aware of the growth rate each year relative to today’s level, it may be more insightful to estimate the rate at which the company is moving on average every year. The pro of this technique is that we can get a bigger picture of the direction of Avast’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 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 8.8%. This means, we can expect Avast will grow its earnings by 8.8% every year for the next couple of years.

Next Steps:

For Avast, I’ve compiled three relevant aspects you should look at:

  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 AVST 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 AVST is currently mispriced by the market.
  3. Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of AVST? 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.