As analysts forecast TKH Group NV (AMS:TWEKA) to register solid earnings growth of 14.73% annualised over the couple of years ahead, let’s stop and think through this encouraging sentiment. Those invested in the stock should contemplate the factors that are causing this projected increase, as there are certain implications that can impact on shareholder return. To help investors get a top level understanding, this article will interpret TKH Group’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.
What can we tell from TWEKA’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. By calculating TWEKA’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 TWEKA
Profit Margin = Net Income ÷ Revenue
∴ Profit Margin = €87.32m ÷ €1.48b = 5.90%
TKH Group’s margin has expanded in the past five years, as a result of a 16.44% average growth in net income exceeding a 5.51% average growth in revenue, indicating that that the previous revenue growth has been accompanied by a growing portion translated in to earnings. The current 5.90% margin seems to continue this movement, which could imply improved cost efficiency as well as increasing revenue contributed to the previous earnings growth.
What does TKH Group’s margin expectation tell us about future earnings?
Margins are expected to expand further, with an expectation of 6.24% in annual revenue growth and a forecasted 14.73% 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, those watching the stock must know a expanding 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 TKH Group in particular, it is expected that profit margins will expand along with the margins in the Electrical industry, whilst at the same time, the forecasted ROE of TKH Group is greater than the industry at 20.28% and 14.70% respectively, although it must not be forgotten than this result is influenced by the company’s debt levels. This highlights that analysts are confident that the underlying earnings characteristics mentioned above will provide a higher return for shareholders in relation to the industry. However, margins use items on the income statement that are prone to being manipulated by various accounting measures, which can distort our analysis. Thus, it is essential to run your own analysis on TKH Group’s future earnings whilst maintaining a watchful eye over the sustainability of their cost management methods and the runway for top line growth.
For TWEKA, there are three pertinent aspects you should further research:
- 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 TWEKA 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 TWEKA is currently mispriced by the market.
- Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of TWEKA? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.