As analysts project ASV Holdings Inc (NASDAQ:ASV) to produce net income growth in the triple digits in the coming 12 months, it’s important to take a step back and consider this convinving vision. Investors should consider the forces that are driving this growth, because the sustainability of returns to shareholders can be impacted on in different ways. To get a preliminary understanding, this article will interpret ASV Holdings’s margin performance to help recognise the underlying make-up of revenue and expenses that is responsible for driving future earnings expectations and what it means for ASV’s returns relative to its competitors.View our latest analysis for ASV Holdings
A closer look at ASV’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. By calculating ASV’s profit margin, we can take a closer look at this ability and use it to understand what is driving earnings growth.
Margin Calculation for ASV
Profit Margin = Net Income ÷ Revenue
∴ Profit Margin = 1.71 Million ÷ 123.34 Million = 1.39%
The past five years have seen ASV Holdings’s margin expand, due to triple digit earnings growth exceeding average revenue growth of 3.44%, 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 1.39% margin seems to continue this movement, which could imply improved cost efficiency as well as increasing revenue contributed to the previous earnings growth.
Understanding what could be driving ASV Holdings’s future earnings
It is expected that margins will continue to expand, with annual revenue growth tipped at 9.58% and a forecasted 53.47% in annual net income growth. 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. Despite this, those watching the stock must know a expanding margin can hold various implications on the company’s performance depending on how it operates, which makes further research very important. Profit margins are commonly useful when employed as a comparitive measure to judge a business’ profit-making ability against its industry. In ASV Holdings’s case, future profit margin is expected to expand simultaneously with margins in the Machinery industry, whilst at the same time, the industry’s forecasted ROE of 11.33% exceeds that of the expected 7.70% ROE for ASV. This suggests that analysts expect ASV Holdings’s return per dollar of equity will lag behind the industry as a result of the earnings attributes identified by our margin analysis. 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 ASV Holdings’s future earnings whilst maintaining a watchful eye over the sustainability of their cost management methods and the runway for top line growth.
For ASV, I’ve put together three essential aspects you should further research:
- 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 ASV 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 ASV is currently mispriced by the market.
- Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of ASV? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!