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In June 2018, China Literature Limited (HKG:772) released its earnings update. Generally, the consensus outlook from analysts appear fairly confident, as a 36.0% increase in profits is expected in the upcoming year, though this is evidently lower than the past 5-year average earnings growth of 78.5%. Presently, with latest-twelve-month earnings at CN¥849.9m, we should see this growing to CN¥1.16b by 2019. Below is a brief commentary around China Literature’s earnings outlook going forward, which may give you a sense of market sentiment for the company. Investors wanting to learn more about other aspects of the company should research its fundamentals here.
Check out our latest analysis for China Literature
How is China Literature going to perform in the near future?
The view from 10 analysts over the next three years is one of positive sentiment. Broker analysts tend to forecast up to three years ahead due to a lack of clarity around the business trajectory beyond this. I’ve plotted out each year’s earnings expectations and inserted a line of best fit to calculate an annual growth rate from the slope in order to understand the overall trajectory of 772’s earnings growth over these next few years.
This results in an annual growth rate of 31.5% based on the most recent earnings level of CN¥556.1m to the final forecast of CN¥1.35b by 2021. This leads to an EPS of CN¥2.23 in the final year of projections relative to the current EPS of CN¥0.74. Earnings growth appears to be a result of cost cutting activities, as revenues is expected to grow much slower than earnings. In 2021, 772’s profit margin will have expanded from 13.6% to 13.8%.
Next Steps:
Future outlook is only one aspect when you’re building an investment case for a stock. For China Literature, I’ve put together three essential factors you should look at:
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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 China Literature 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 China Literature 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 China Literature? 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.