As analysts forecast Ansaldo STS Sp.A. (BIT:STS) to register noticeable earnings growth of 28.26% in the coming year, it’s important to take a step back and consider this encouraging sentiment. Investors should consider the forces that are spurring this growth, because the sustainability of returns to shareholders can be impacted on in different ways. To get a preliminary understanding, this article will interpret Ansaldo STS’s margin performance 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.View our latest analysis for Ansaldo STS
Understanding STS’s earnings with 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. 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 STS’s profit margin.
Margin Calculation for STS
Profit Margin = Net Income ÷ Revenue
∴ Profit Margin = 66.40 Million ÷ 1.38 Billion = 4.81%
Ansaldo STS’s margin has expanded in the past five years, as a result of a 6.95% average growth in net income outstripping 1.94% in average revenue growth, indicating that that the previous revenue growth has been acompanied by a growing portion translated in to earnings. STS’s most recent margin of 4.81% appears to follow this trend, indicating that earnings growth has likely been driven through improved cost management alongside the benefits of revenue growth.
What does Ansaldo STS’s margin expectation tell us about future earnings?
It is expected that margins will further the previous expansion, with annual revenue growth tipped at 3.21% and a forecasted 13.46% 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. However, investors should realise a expanding margin has different impacts on profit and return depending on the underlying situation, which reinforces the importance of deeper research. In many situations, looking at a company’s profit margin in relation to other similar businesses can be more informative. For STS, profit margins moving forward are forecasted to expand along with the Infrastructure industry margins, whilst at the same time, STS’s forecasted ROE and the expected ROE of the industry is roughly equal at 11.30% and 11.20% respectively. This suggests that analysts expect Ansaldo STS’s return per dollar of equity will approximately match the industry as a result of the earnings attributes identified by 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 Ansaldo STS’s future earnings whilst maintaining a watchful eye over the sustainability of their cost management methods and the runway for top line growth.
For STS, there are three pertinent 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 STS 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 STS is currently mispriced by the market.
- Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of STS? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!