With analysts projecting Asian Pay Television Trust (SGX:S7OU) to register robust earnings growth of 20.73% over the next year, it’s important to take a step back and consider this strong vision. It is crucial for investors to do this, so they can judge the underlying components responsible for spurring this projected increase, because the sustainability of returns to shareholders can be impacted on in different ways. To get a preliminary understanding, I will try to evaluate Asian Pay Television Trust’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.Check out our latest analysis for Asian Pay Television Trust
What can we tell from S7OU’s 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 = 36.45 Million ÷ 334.84 Million = 10.88%
Asian Pay Television Trust’s margin has expanded in the past five years, with average net income growth of 7.98% exceeding 1.11% in average revenue growth, which means that the previous increase in revenue has coincided with a larger portion falling to the bottom line. S7OU’s most recent margin of 10.88% appears to follow this trend, which could imply improved cost efficiency as well as increasing revenue contributed to the previous earnings growth.
Using Asian Pay Television Trust’s margin expectations as a way to understand projections for the future
It is expected that margins will further the previous expansion, with -0.88% in expected annual earnings growth and revenue expected to fall at 7.97% on an annual basis. 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, investors should realise a expanding margin has different impacts on profit and return depending on the underlying situation, which reinforces the importance of deeper research. Generally, it is useful to judge profit margin and its implication on return in comparison to other companies who share similar traits. For S7OU, profit margins moving forward are forecasted to expand simultaneously with margins in the Media industry, and at the same time, S7OU’s projected ROE of 3.80% is less than the 12.29% expected ROE for the rest of industry. This serves as an indication that analysts covering the stock expect the nature of Asian Pay Television Trust’s earnings will produce a lower return per dollar of equity compared 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 Asian Pay Television Trust’s future expectations whilst maintaining a watchful eye over the long term sustainability of cost cutting measures as a way to drive earnings growth.
For S7OU, there are three fundamental 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 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!