In June 2017, The a2 Milk Company Limited (NZSE:ATM) announced its latest earnings update, which signalled that the business experienced a significant tailwind, more than doubling its earnings from the prior year. Today I want to provide a brief commentary on how market analysts view a2 Milk’s earnings growth trajectory over the next couple of years and whether the future looks even brighter than the past. I will be using net income excluding extraordinary items in order to exclude one-off volatility which I am not interested in. View our latest analysis for a2 Milk
Analysts’ outlook for next year seems positive, with earnings rising by a significant 83.52%. This strong growth in earnings is expected to continue, bringing the bottom line up to NZ$269.0M by 2020.
While it’s helpful to be aware of the growth each year relative to today’s figure, it may be more valuable analyzing the rate at which the business is growing every year, on average. The benefit of this technique is that it ignores near term flucuations and accounts for the overarching direction of a2 Milk’s earnings trajectory over time, which may be more relevant for long term investors. To compute 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 23.53%. This means, we can assume a2 Milk will grow its earnings by 23.53% every year for the next couple of years.
Next Steps:
For a2 Milk, there are three pertinent aspects you should look at:
1. 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.
2. Valuation: What is ATM 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 ATM is currently mispriced by the market.
3. Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of ATM? 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 pass 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.