In August 2019, RedHill Education Limited (ASX:RDH) announced its most recent earnings update, which showed that the company experienced a significant headwind with earnings falling by -15%. Below is my commentary, albeit very simple and high-level, on how market analysts perceive RedHill Education's earnings growth outlook over the next couple of 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.
Check out our latest analysis for RedHill Education
Analysts' outlook for the upcoming year seems positive, with earnings expanding by a robust 28%. This growth seems to continue into the following year with rates reaching double digit 75% compared to today’s earnings, and finally hitting AU$5.5m by 2022.
While it is helpful to understand the growth year by year relative to today’s figure, it may be more valuable estimating the rate at which the earnings are growing every year, on average. The pro of this method is that we can get a bigger picture of the direction of RedHill Education'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 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 22%. This means, we can anticipate RedHill Education will grow its earnings by 22% every year for the next few years.
Next Steps:
For RedHill Education, I've put together three relevant factors you should further research:
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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 RDH 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 RDH 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 RDH? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
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