Enanta Pharmaceuticals Inc’s (NASDAQ:ENTA) gloomy vision for earnings in the future drives analysts to forecast a material decline of -40.41% annualised over the few years to come, but it’s necessary to take a moment and consider this appraisal. Those invested in the stock should contemplate the factors that are driving this growth, as there are certain implications that can impact on shareholder return. To get some insight, this article will interpret Enanta Pharmaceuticals’s margin performance 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.View out our latest analysis for Enanta Pharmaceuticals
What can we tell from ENTA’s profit margin?
At a high level, a company’s ability to earn on their sales efforts can play an important role in determining shareholder value. 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 ENTA’s profit margin.
Margin Calculation for ENTA
Profit Margin = Net Income ÷ Revenue
∴ Profit Margin = US$52.33m ÷ US$165.60m = 31.60%
There has been a contraction in Enanta Pharmaceuticals’s margin over the past five years, due to 17.98% in average revenue growth surpassing a 14.97% average growth in net income, which suggests that a smaller percentage of revenue falls to the bottom line despite the fact revenue has increased over the previous 5 years. The current 31.60% margin seems to continue this movement, which suggests that the increase in net income has possibly occured due to growing revenues as opposed to lowering costs.
What does Enanta Pharmaceuticals’s margin expectation tell us about future earnings?
Based on future expectations, ENTA’s profit margin will contract further, with 2.51% in expected annual revenue growth and a -40.41% expected annual decline in net income. This suggests the previous earnings growth is expected to reverse due to an increase in costs rather than a dramatic fall in revenue potential. This is causing negative net income growth, whilst revenue growth remains positive, resulting in the expectation for margins to contract. However, those interested in the company should remember that margin contraction has different impacts on profit and return depending on the underlying situation, which reinforces the importance of deeper research.
For ENTA, there are three fundamental factors 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.
- Future Earnings: How does ENTA’s growth rate compare to its peers and the wider market? Dig deeper into the analyst consensus number for the upcoming years by interacting with our free analyst growth expectation chart.
- Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of ENTA? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!