Mindtree Limited (BOM:532819): Are Forecast Margins sustainable?

With analysts forecasting Mindtree Limited (BOM:532819) to report robust earnings growth of 15.23% in the coming year, let's stop and think through this encouraging sentiment. It is crucial for investors to do this, so they can judge the underlying components responsible for causing this projected increase, because the sustainability of returns to shareholders can be impacted on in different ways. To help investors get a top level understanding, I will shine a light on the behaviour of Mindtree’s margins so investors can evaluate the revenue and cost drivers behind future earnings projections and understand how they may impact on returns compared to the industry.

A closer look at 532819's profit margin

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 532819's profit margin, we can take a closer look at this ability and use it to understand what is driving earnings growth.

There has been a contraction in Mindtree's margin over the past five years, due to 18.26% in average revenue growth outstripping a 12.26% average growth in net income, which means that although revenue has increased, a smaller portion falls in to the bottom line. 532819's most recent margin of 10.44% appears to follow this trend, indicating that earnings growth has likely been driven through an increase in revenue rather than improved cost management.

Understanding what could be driving Mindtree's future earnings

Margins are expected to move from contraction into expansion, with an expectation of 12.49% in annual revenue growth and a forecasted 14.31% in annual net income growth. 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. Nonetheless, investors should realise a expanding margin can hold various implications on the company's performance depending on how it operates, which makes further research very important.

Next Steps:

For 532819, I've put together three important factors you should further research:

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 532819 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 532819 is currently mispriced by the market.
3. Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of 532819? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!

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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.