Based on DiamondRock Hospitality Company’s (NYSE:DRH) earnings update in December 2018, analysts seem cautiously optimistic, as a 4.6% increase in profits is expected in the upcoming year, against the past 5-year average growth rate of 0.6%. Presently, with latest-twelve-month earnings at US$88m, we should see this growing to US$92m by 2020. In this article, I’ve outline a few earnings growth rates to give you a sense of the market sentiment for DiamondRock Hospitality in the longer term. For those keen to understand more about other aspects of the company, you can research its fundamentals here.
Exciting times ahead?
The 11 analysts covering DRH view its longer term outlook with a negative sentiment. Since forecasting becomes more difficult further into the future, broker analysts generally project out to around three years. I’ve plotted out each year’s earnings expectations and inserted a line of best fit to calculate an annual growth rate from the slope in order to understand the overall trajectory of DRH’s earnings growth over these next few years.
By 2022, DRH’s earnings should reach US$77m, from current levels of US$88m, resulting in an annual growth rate of -2.2%. However, if we exclude extraordinary items from earnings, we see that the profits is predicted to rise over time, resulting in an EPS of $0.47 in the final year of forecast compared to the current $0.43 EPS today. Contraction in the bottom line seems to suggest top-line expansion of 3.0%, which is predicted to lag cost growth leading up to 2022. Furthermore, the current 10% margin is expected to contract to 8.1% by the end of 2022.
Future outlook is only one aspect when you’re building an investment case for a stock. For DiamondRock Hospitality, there are three important factors 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 DiamondRock Hospitality 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 DiamondRock Hospitality is currently mispriced by the market.
- Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of DiamondRock Hospitality? 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 email@example.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.