As analysts project Asian Pay Television Trust (SGX:S7OU) to produce robust earnings growth of 14.89% annualised over the couple of years ahead, it’s important to take a step back and reflect on this positive outlook. It is crucial for investors to do this, so they can judge the underlying components responsible for causing this decline, because the sustainability of returns to shareholders can be impacted on in different ways. To get a preliminary understanding, I will shine a light on the behaviour of Asian Pay Television Trust’s margins 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 out our latest analysis for Asian Pay Television Trust
Understanding S7OU’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 S7OU’s profit margin.
Margin Calculation for S7OU
Profit Margin = Net Income ÷ Revenue
∴ Profit Margin = S$24.92m ÷ S$329.26m = 7.57%
The past five years have seen Asian Pay Television Trust’s margin expand, with average net income growth of 4.85% exceeding average revenue growth of 1.03%, which suggests that the company has been able to convert a larger percentage of revenue into net income whilst grow their top line at the same time. The current 7.57% margin seems to continue this movement, indicating that earnings growth has likely been driven through improved cost management alongside the benefits of revenue growth.
What does Asian Pay Television Trust’s margin expectation tell us about future earnings?
Based on future expectations, S7OU’s profit margin will keep on expanding, with annual earnings growth tipped at -3.37% and revenue forecasted to decline annually at 14.89%. This suggests future earnings growth is driven further by an expected reduction in costs as opposed to revenue growth, which is enlarging the incremental amount of net income that is retained from falling revenue. Despite this, those interested in the company should remember that margin expansion has different impacts on profit and return depending on the underlying situation, which reinforces the importance of deeper research.
For S7OU, there are three fundamental 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 S7OU 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 S7OU is currently mispriced by the market.
- Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of S7OU? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!