Zydus Wellness Limited’s (BOM:531335) stable vision for earnings in the future drives analysts to forecast subtle growth of 0.45% over the next year, but it’s necessary to take a moment and reflect on this projection. Those invested in the stock should contemplate the factors that are causing this growth, because the sustainability of returns to shareholders can be impacted on in different ways. To get a preliminary understanding, I will shine a light on the behaviour of Zydus Wellness’s margins to help recognise the underlying make-up of revenue and expenses that is responsible for driving future earnings expectations and what it means for 531335’s returns relative to its competitors.See our latest analysis for Zydus Wellness
What does 531335’s profit margin tell us?
Attractive margins generally indicate a desirable ability to translate sales revenue in to earnings, and return for shareholders. By calculating 531335’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 531335
Profit Margin = Net Income ÷ Revenue
∴ Profit Margin = ₹1.34b ÷ ₹5.03b = 26.61%
The past five years have seen Zydus Wellness’s margin expand, with a 8.22% average growth in net income surpassing average revenue growth of 5.32%, which means that the previous increase in revenue has coincided with a larger portion falling to the bottom line. The current 26.61% margin seems to continue this movement, which suggests that the increase in net income has likely occurred from a combination of enhanced cost efficiency as well as top line growth.
What does Zydus Wellness’s margin expectation tell us about future earnings?
Margins are expected to transition into contraction, with an expectation of 13.99% in annual revenue growth and 11.57% earnings growth expected annually. This indicates net income growth is to be increased further through revenue growth, which is expected to squeeze the incremental amount of net income that is retained. However, investors should realise margin contraction can hold various implications on the company’s performance depending on how it operates, which makes further research very important.
For 531335, there are three key 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 531335 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 531335 is currently mispriced by the market.
- Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of 531335? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!