Sheng Siong Group Ltd’s (SGX:OV8) released its most recent earnings update in December 2018, which suggested that the company experienced a small tailwind, eventuating to a single-digit earnings growth of 1.4%. Today I want to provide a brief commentary on how market analysts perceive Sheng Siong Group’s earnings growth outlook over the next few years and whether the future looks even brighter than the past. Note that I will be looking at net income excluding extraordinary items to get a better understanding of the underlying drivers of earnings.
Analysts’ outlook for this coming year seems rather subdued, with earnings climbing by a single digit 9.5%. The growth outlook in the following year seems much more optimistic with rates generating double digit 18% compared to today’s earnings, and finally hitting S$86m by 2022.
Although it’s informative knowing the growth each year relative to today’s level, it may be more beneficial to determine the rate at which the business is growing every year, on average. The benefit of this technique is that it ignores near term flucuations and accounts for the overarching direction of Sheng Siong Group’s earnings trajectory over time, which may be more relevant for long term investors. To calculate 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 6.9%. This means, we can assume Sheng Siong Group will grow its earnings by 6.9% every year for the next couple of years.
For Sheng Siong Group, there are three key aspects you should look at:
- 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 OV8 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 OV8 is currently mispriced by the market.
- Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of OV8? 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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