With analysts projecting Public Joint Stock Company Magnit (MISX:MGNT) to report a contraction in earnings of -4.52% in the coming 12 months, it’s necessary to take a moment and think through this unfavourable outlook. It is crucial for investors to do this, so they can judge the underlying components responsible for sparking this decline, because the sustainability of returns to shareholders can be impacted on in different ways. To get some insight, I will try to evaluate Magnit’s margin behaviour to assist in analysing the revenue and cost anatomy behind the earnings expectations for the future and the impact it has on shareholder returns relative to the wider industry.See our latest analysis for Magnit
Understanding MGNT’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. MGNT’s profit margin will help us understand the extent of this ability, as well as identify the forces behind earnings expectations.
Margin Calculation for MGNT
Profit Margin = Net Income ÷ Revenue
∴ Profit Margin = 609.04 Million ÷ 19.59 Billion = 3.11%
There has been a contraction in Magnit’s margin over the past five years, as a result of a 5.97% average growth in revenue outstripping a 5.25% average growth in net income, which means that although revenue has increased, a smaller portion falls in to the bottom line. MGNT’s most recent margin of 3.11% appears to follow this trend, which suggests that the increase in net income has possibly occured due to growing revenues as opposed to lowering costs.
Understanding what could be driving Magnit’s future earnings
Margins are expected to reverse its previous trend and start to expand, with annual revenue growth tipped at 8.95% and 11.53% earnings growth expected annually. 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 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 Magnit in particular, it is expected that profit margins will expand simultaneously with Consumer Retailing industry margins, whilst at the same time, MGNT’s forecasted ROE and the expected ROE of the industry is roughly equal at 12.61% and 11.67% respectively (note that relative debt levels need to be considered in this observation). This highlights that analysts believe the underlying earnings characteristics mentioned above will provide a return for shareholders that is comparable 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 Magnit’s future earnings whilst maintaining a watchful eye over the sustainability of their cost management methods and the runway for top line growth.
For MGNT, I’ve compiled three relevant 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 MGNT 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 MGNT is currently mispriced by the market.
- Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of MGNT? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!