As analysts forecast Lypsa Gems & Jewellery Limited (NSEI:LYPSAGEMS) to register noticeable earnings growth of 12.43% in the coming 12 months, it’s necessary to take a moment and consider this positive outlook. It is crucial for investors to do this, so they can judge the underlying components responsible for spurring this growth, because the sustainability of returns to shareholders can be impacted on in different ways. To get a preliminary understanding, I will try to evaluate Lypsa Gems & Jewellery’s margin behaviour to assist in analysing the revenue and cost anatomy behind the earnings expectations for the future and the impact it has on shareholder returns relative to the wider industry.See our latest analysis for Lypsa Gems & Jewellery
What can we tell from LYPSAGEMS’s profit margin?
At a high level, a company’s ability to earn on their sales efforts can play an important role in determining shareholder value. Knowing the portion of top line revenue that is turned into net income helps to assess this ability whilst spotting profit drivers, and can be found by calculating LYPSAGEMS’s profit margin.
Margin Calculation for LYPSAGEMS
Profit Margin = Net Income ÷ Revenue
∴ Profit Margin = 295.07 Million ÷ 3.29 Billion = 8.98%
Lypsa Gems & Jewellery’s margin has expanded in the past five years, due to a 33.50% average growth in net income exceeding a 3.47% average growth in revenue, indicating that that the previous revenue growth has been acompanied by a growing portion translated in to earnings. The current 8.98% margin seems to continue this movement, indicating that earnings growth has likely been driven through improved cost management alongside the benefits of revenue growth.
What does Lypsa Gems & Jewellery’s margin expectation tell us about future earnings?
Forward looking projections suggest margins will become relatively steady, with an expectation of 14.68% in annual revenue growth and 16.22% earnings growth expected annually. This suggests future earnings growth is driven further by sound cost management alongside revenue increases, which is maintaining the incremental amount of net income that is retained from the forecasted revenue growth. Despite this, those interested in the company should remember that a stagnating margin can hold various implications on the company’s performance depending on how it operates, which makes further research very important. Generally, it is useful to judge profit margin and its implication on return in comparison to other companies who share similar traits. For Lypsa Gems & Jewellery in particular, it is expected that profit margins will stay steady at the same time as the margins in the Luxury industry expand, and at the same time, the forecasted ROE of Lypsa Gems & Jewellery is greater than the industry at 21.48% and 8.37% respectively, although it must not be forgotten than this result is influenced by the company’s debt levels. This suggests that analysts expect Lypsa Gems & Jewellery’s return per dollar of equity will exceed the industry due to the earnings attributes identified in our margin analysis. 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 Lypsa Gems & Jewellery’s future earnings whilst keeping a watchful eye over their ability to maintain cost efficiency and top line growth as these are the factors driving future earnings growth according to our preliminary margin analysis.
For LYPSAGEMS, there are three essential factors 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. Future Earnings: How does LYPSAGEMS’s growth rate compare to its peers and the wider market? Dig deeper into the analyst consensus number for the upcoming years by interacting with our free analyst growth expectation chart.
- 3. Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of LYPSAGEMS? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!