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International Business Machines Corporation’s (NYSE:IBM) most recent earnings update in December 2018 revealed that the business experienced a sizeable tailwind, eventuating to a high double-digit earnings growth of 51%. Below, I’ve laid out key growth figures on how market analysts predict International Business Machines’s earnings growth trajectory over the next couple of years and whether the future looks even brighter than the past. Note that I will be looking at net income excluding extraordinary items to get a better understanding of the underlying drivers of earnings.
Analysts’ outlook for this coming year seems optimistic, with earnings increasing by a robust 27%. This growth seems to continue into the following year with rates reaching double digit 29% compared to today’s earnings, and finally hitting US$11b by 2022.
While it’s helpful to understand the growth rate each year relative to today’s level, it may be more valuable gauging the rate at which the earnings are moving every year, on average. The advantage of this technique is that we can get a better picture of the direction of International Business Machines’s earnings trajectory over the long run, irrespective of near term fluctuations, which may be more relevant for long term investors. To calculate this rate, I put a line of best fit through the forecasted earnings by market analysts. The slope of this line is the rate of earnings growth, which in this case is 7.3%. This means that, we can anticipate International Business Machines will grow its earnings by 7.3% every year for the next few years.
For International Business Machines, there are three pertinent aspects 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 IBM 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 IBM is currently mispriced by the market.
- Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of IBM? 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.