South32 Limited (ASX:S32): What Does The Future Look Like?
South32 Limited’s (ASX:S32) most recent earnings announcement in June 2018 revealed that the company benefited from a small tailwind, leading to a single-digit earnings growth of 8.2%. Investors may find it useful to understand how market analysts perceive South32’s earnings growth outlook over the next couple of 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.
View our latest analysis for South32
Analysts’ expectations for the coming year seems optimistic, with earnings rising by a robust 13%. However, the following year seems to show a contrast, with earnings falling by -2.2%. This volatility continues into the final year of forecast, with earnings arriving at US$1.2b.
Even though it’s useful to understand the rate of growth year by year relative to today’s figure, it may be more insightful to gauge the rate at which the business is moving on average every year. The pro of this method is that it ignores near term flucuations and accounts for the overarching direction of South32’s earnings trajectory over time, fluctuate up and down. To calculate this rate, I’ve inserted 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 -5.4%. This means that, we can presume South32 will chip away at a rate of -5.4% every year for the next few years.
Next Steps:
For South32, I’ve compiled three fundamental 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 S32 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 S32 is currently mispriced by the market.
Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of S32? 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.