In This Article:
The most recent earnings update carsalescom Ltd’s (ASX:CAR) released in June 2018 revealed that the company experienced a large tailwind, leading to a high double-digit earnings growth of 69%. Below is my commentary, albeit very simple and high-level, on how market analysts predict carsales.com’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.
See our latest analysis for carsales.com
Analysts’ expectations for the upcoming year seems pessimistic, with earnings reducing by a double-digit -25%. Beyond this, earnings are predicted to continue to be below today’s level, with a decline of -16% in 2020, eventually reaching AU$156m in 2021.
While it’s helpful to be aware of the growth each year relative to today’s figure, it may be more valuable to analyze the rate at which the company is rising or falling on average every year. The pro of this approach is that it ignores near term flucuations and accounts for the overarching direction of carsales.com’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 2.6%. This means that, we can presume carsales.com will grow its earnings by 2.6% every year for the next couple of years.
Next Steps:
For carsales.com, there are 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 CAR 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 CAR 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 CAR? 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.