Symantec’s worrying earnings sentiment drives analysts to expect a material decline of -53.70% in the coming year, but it’s necessary to take a moment and think through this appraisal. It is crucial for investors to do this, so they can judge the underlying components responsible for sparking this decline, as the return realised by shareholders may look different in the future if underlying assumptions are not realised. To get some insight, this article will interpret Symantec’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.See our latest analysis for Symantec
What does SYMC’s profit margin tell us?
At a high level, a company’s ability to earn on their sales efforts can play an important role in determining shareholder value. By calculating SYMC’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 SYMC
Profit Margin = Net Income ÷ Revenue
∴ Profit Margin = 1.01 Billion ÷ 4.74 Billion = 21.27%
The past five years have seen Symantec’s margin contract, as a result of net income declining at -35.24% on average, which was more than the average fall in revenue of -10.33%, indicating that that the company’s decline in the top line has also corresponded with a smaller portion flowing out as earnings. SYMC’s most recent margin of 21.27% appears to follow this trend, which suggests that the decrease in net income has likely occurred from a combination of a lack of cost efficiency as well as a fall in the top line.
Using Symantec’s margin expectations as a way to understand projections for the future
It is expected that margins will continue to contract, with annual revenue growth tipped at 2.48% and a -63.06% expected annual decline in net income. This suggests the future earnings decline is driven further by an increase in costs rather than a dramatic fall in revenue potential, which is squeezing the incremental amount of net income that is retained from the forecasted revenue increase. Despite this, investors should realise a contracting margin can mean different things for different companies, thus more detailed research is essential. Generally, it is useful to judge profit margin and its implication on return in comparison to other companies who share similar traits. For Symantec in particular, future profit margin is expected to contract at the same time as the margins in the Software industry expand, and at the same time, the forecasted ROE of Symantec is greater than the industry at 26.91% and 12.42% respectively, although it must not be forgotten than this result is influenced by the company’s debt levels. This serves as an indication of the confidence amongst analysts covering that stock that the nature of Symantec’s earnings will result in a higher return per dollar of equity compared to the industry. 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 Symantec’s future expectations whilst maintaining a watchful eye over cost behaviour, because if the business is able to maintain their revenue trajectory, there may be an opportunity to return to positive earnings growth and attractive returns.
For SYMC, I’ve compiled three important 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.
- Valuation: What is SYMC 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 SYMC is currently mispriced by the market.
- Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of SYMC? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!