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In March 2019, Serko Limited (NZSE:SKO) announced its most recent earnings update, which signalled that the company experienced a major headwind with earnings deteriorating by -11%. Below is my commentary, albeit very simple and high-level, on how market analysts predict Serko's earnings growth trajectory over the next few years and whether the future looks brighter. I will be using net income excluding extraordinary items in order to exclude one-off volatility which I am not interested in.
See our latest analysis for Serko
Market analysts' consensus outlook for the coming year seems pessimistic, with earnings reducing by -4.9%. But in the following year, there is a complete contrast in performance, with generating double digit 37% compared to today’s level and continues to increase to NZ$4.7m in 2022.
While it’s helpful to understand the rate of growth each year relative to today’s figure, it may be more insightful to estimate the rate at which the business is rising or falling every year, on average. The benefit of this method is that it ignores near term flucuations and accounts for the overarching direction of Serko's earnings trajectory over time, which may be more relevant for long term investors. To compute 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 32%. This means, we can assume Serko will grow its earnings by 32% every year for the next few years.
Next Steps:
For Serko, I've put together three essential factors you should further examine:
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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.
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Valuation: What is SKO 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 SKO is currently mispriced by the market.
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Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of SKO? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.