UOL Group Limited (SGX:U14): Should The Future Outlook Worry You?

As UOL Group Limited (SGX:U14) announced its recent earnings release on 31 December 2018, analyst forecasts seem bearish, with earnings expected to decline by -14% in the upcoming year. However, this outlook is not unsubstantiated given the negative earnings growth rate over the past five years on average. Presently, with latest-twelve-month earnings at S$434m, we should see this fall to S$373m by 2020. In this article, I’ve outline a few earnings growth rates to give you a sense of the market sentiment for UOL Group in the longer term. For those interested in more of an analysis of the company, you can research its fundamentals here.

See our latest analysis for UOL Group

Can we expect UOL Group to keep growing?

Longer term expectations from the 10 analysts covering U14’s stock is one of negative sentiment. Generally, broker analysts tend to make predictions for up to three years given the lack of visibility beyond this point. To understand the overall trajectory of U14’s earnings growth over these next fews years, I’ve fitted a line through these analyst earnings forecast to determine an annual growth rate from the slope.

SGX:U14 Past and Future Earnings, March 23rd 2019
SGX:U14 Past and Future Earnings, March 23rd 2019

This results in an annual growth rate of -3.3% based on the most recent earnings level of S$434m to the final forecast of S$404m by 2022. This leads to an EPS of SGD0.48 in the final year of projections relative to the current EPS of SGD0.51. The bottom-line decline seems to be caused by cost outpacing top line growth of 2.9% over the next few years. With this high cost growth, margins is expected to contract from 18% to 15% by the end of 2022.

Next Steps:

Future outlook is only one aspect when you’re building an investment case for a stock. For UOL Group, I’ve compiled three relevant factors you should further examine:

  1. 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.
  2. Valuation: What is UOL Group 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 UOL Group is currently mispriced by the market.
  3. Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of UOL Group? 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 editorial-team@simplywallst.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.