Estia Health Limited’s (ASX:EHE) latest earnings announcement in June 2018 showed that the business gained from a small tailwind, eventuating to a single-digit earnings growth of 1.1%. Below is a brief commentary on my key takeaways on how market analysts view Estia Health’s earnings growth trajectory 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 Estia Health

Analysts’ outlook for the upcoming year seems rather subdued, with earnings growing by a single digit 9.1%. The growth outlook in the following year seems much more buoyant with rates generating double digit 13.3% compared to today’s earnings, and finally hitting AU$49.4m by 2021.

Even though it is informative understanding the rate of growth year by year relative to today’s value, it may be more valuable to evaluate the rate at which the company is moving on average every year. The advantage of this approach is that we can get a better picture of the direction of Estia Health’s earnings trajectory over the long run, irrespective of near term fluctuations, which may be more relevant for long term investors. To compute this rate, I’ve appended 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 4.5%. This means, we can assume Estia Health will grow its earnings by 4.5% every year for the next couple of years.

Next Steps:

For Estia Health, I’ve put together three important aspects you should further research:

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 EHE 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 EHE is currently mispriced by the market.

3. Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of EHE? 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.