Century Enka's remarkably upbeat outlook for net income has analysts projecting meaningful growth of 93.87% over the next year, but let's stop and evaluate this expectation. Those invested in the stock should contemplate the factors that are driving this growth, as the return realised by shareholders may look different in the future if underlying assumptions are not realised. To get some insight, this article will interpret Century Enka's margin performance to help recognise the underlying make-up of revenue and expenses that is responsible for driving future earnings expectations and what it means for CENTENKA's returns relative to its competitors.See our latest analysis for Century Enka
What does CENTENKA's profit margin tell us?
In general, the value that accrues to equity holders is partly reliant on the ability of a company to convert sales revenue in to earnings. By calculating CENTENKA's profit margin, we can take a closer look at this ability and use it to understand what is driving earnings growth.
Margin Calculation for CENTENKA
Profit Margin = Net Income ÷ Revenue
∴ Profit Margin = 700.90 Million ÷ 14.16 Billion = 4.95%
There has been an expansion in Century Enka's margin over the past five years, with positive average net income growth of 15.68% and decline in revenue growth of -5.08% on average, which means that the decrease in revenue has coincided with a larger portion falling to the bottom line as the company was able to maintain a positive earnings trajectory. CENTENKA's most recent margin of 4.95% appears to follow this trend, indicating that earnings growth has likely been driven through improved cost management as opposed to revenue growth.
What can we tell from future expectations?
Based on future expectations, CENTENKA's profit margin will expand further, with annual revenue growth tipped at 9.42% and 63.93% earnings growth expected annually. This suggests future earnings growth is driven further by enhanced cost efficiency alongside revenue increases, which is enlarging the incremental amount of net income that is retained from the forecasted revenue growth. Despite this, investors should realise margin expansion can mean different things for different companies, thus more detailed research is essential. Generally, it is useful to judge profit margin and its implication on return in comparison to other companies who share similar traits. In Century Enka’s case, profit margins moving forward are forecasted to expand simultaneously with margins in the Luxury industry, whilst at the same time, the forecasted ROE of Century Enka is greater than the industry at 13.32% and 8.09% respectively, although it must not be forgotten than this result is influenced by the company's debt levels. This highlights that analysts are confident that the underlying earnings characteristics mentioned above will provide a higher return for shareholders in relation to the industry. But before moving forward, it must be remembered that bottom line earnings and profit margins are susceptible to being manipulated and don't always give the full picture. Thus, it is essential to run your own analysis on Century Enka's future earnings whilst maintaining a watchful eye over the sustainability of their cost management methods and the runway for top line growth.
For CENTENKA, there are three key 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 CENTENKA 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 CENTENKA is currently mispriced by the market.
- Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of CENTENKA? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
If you decide to trade Century Enka, use the lowest-cost* platform that is rated #1 Overall by Barron's, Interactive Brokers. Trade stocks, options, futures, forex, bonds and funds on 135 markets, all from a single integrated account.
Simply Wall St has no position in any of the companies mentioned. This article 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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020