Yahoo Finance McMillan Shakespeare Limited (ASX:MMS): What Can We Expect From This High Growth Stock?
In June 2018, McMillan Shakespeare Limited (ASX:MMS) announced its latest earnings update, which indicated that the business faced a substantial headwind with earnings declining by -26%. Below is my commentary, albeit very simple and high-level, on how market analysts predict McMillan Shakespeare’s earnings growth trajectory over the next few years and whether the future looks brighter. Note that I will be looking at net income excluding extraordinary items to get a better understanding of the underlying drivers of earnings.
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Market analysts’ prospects for the coming year seems optimistic, with earnings growing by a significant 93%. This strong growth in earnings is expected to continue, bringing the bottom line up to AU$121m by 2022.
Even though it’s useful to be aware of the rate of growth each year relative to today’s level, it may be more insightful to analyze the rate at which the business is moving every year, on average. The advantage of this method is that it removes the impact of near term flucuations and accounts for the overarching direction of McMillan Shakespeare’s earnings trajectory over time, which may be more relevant for long term investors. To calculate 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 21%. This means, we can presume McMillan Shakespeare will grow its earnings by 21% every year for the next few years.
Next Steps:
For McMillan Shakespeare, there are three fundamental aspects 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 MMS 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 MMS is currently mispriced by the market.
Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of MMS? 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 editorial-team@simplywallst.com.
