The latest earnings release Versum Materials Inc’s (NYSE:VSM) announced in September 2018 showed that the company experienced a slight tailwind, eventuating to a single-digit earnings growth of 2.2%. Below is my commentary, albeit very simple and high-level, on how market analysts predict Versum Materials’s earnings growth trajectory over the next few years and whether the future looks even brighter than the past. I will be looking at earnings excluding extraordinary items to exclude one-off activities to get a better understanding of the underlying drivers of earnings.
Market analysts’ consensus outlook for this coming year seems buoyant, with earnings increasing by a robust 34%. However, earnings is expected to fall slightly in the following year before rising again to US$265m in 2021.
While it is useful to understand the growth rate year by year relative to today’s value, it may be more valuable to analyze the rate at which the earnings are growing on average every year. The benefit of this technique is that we can get a bigger picture of the direction of Versum Materials’s earnings trajectory over the long run, irrespective of near term fluctuations, fluctuate up and down. To compute this rate, I put a line of best fit through analyst consensus of forecasted earnings. The slope of this line is the rate of earnings growth, which in this case is 10%. This means, we can anticipate Versum Materials will grow its earnings by 10% every year for the next couple of years.
For Versum Materials, I’ve compiled three important factors you should further examine:
- 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 VSM 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 VSM is currently mispriced by the market.
- Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of VSM? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.