What Should You Know About the future of Hexaware Technologies Limited's (NSE:HEXAWARE)?

With analysts expecting Hexaware Technologies Limited (NSE:HEXAWARE) to record robust earnings growth of 15.55% in the coming year, let's stop and evaluate this positive outlook. 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 a preliminary understanding, I will shine a light on the behaviour of Hexaware Technologies’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 HEXAWARE's returns relative to its competitors.

Understanding HEXAWARE's earnings with profit margin

Attractive margins generally indicate a desirable ability to translate sales revenue in to earnings, and return for shareholders. 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 HEXAWARE's profit margin.

The past five years have seen Hexaware Technologies's margin contract, with 15.63% in average revenue growth surpassing 9.36% in average net income growth, which suggests that a smaller percentage of revenue falls to the bottom line despite the fact revenue has increased over the previous 5 years. HEXAWARE's most recent margin of 12.90% appears to follow this trend, which could imply that increasing revenue has driven earnings growth rather than enhanced cost management.

What can we tell from future expectations?

Forward looking projections suggest margins will transition into relative stability, with 12.87% in expected annual revenue growth and annual net income growth forecasted at 12.64%. 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. Nonetheless, those watching the stock must know a stagnating margin can hold various implications on the company's performance depending on how it operates, which makes further research very important.

Next Steps:

For HEXAWARE, there are three important 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 HEXAWARE 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 HEXAWARE is currently mispriced by the market.
3. Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of HEXAWARE? 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.