In December 2018, NZX Limited (NZSE:NZX) announced its latest earnings update, which signalled that the company endured a minor headwind with earnings falling from NZ$14m to NZ$14m, a change of -4.9%. Below is my commentary, albeit very simple and high-level, on how market analysts perceive NZX’s earnings growth outlook over the next few years and whether the future looks brighter. I will be looking at earnings excluding extraordinary items to exclude one-off activities to get a better understanding of the underlying drivers of earnings.
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Analysts’ outlook for the coming year seems rather muted, with earnings growing by a single digit 3.1%. The growth outlook in the following year seems much more positive with rates generating double digit 14% compared to today’s earnings, and finally hitting NZ$17m by 2022.
While it’s useful to understand the growth year by year relative to today’s value, it may be more insightful evaluating the rate at which the business is growing every year, on average. The benefit of this method is that we can get a better picture of the direction of NZX’s earnings trajectory over the long run, irrespective of near term fluctuations, which may be more relevant for long term investors. To compute this rate, I put a line of best fit through analyst consensus of forecasted earnings. The slope of this line is the rate of earnings growth, which in this case is 8.5%. This means, we can anticipate NZX will grow its earnings by 8.5% every year for the next few years.
For NZX, there are three essential 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 NZX 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 NZX is currently mispriced by the market.
- Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of NZX? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.