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Since Serko Limited (NZSE:SKO) released its earnings in March 2018, analyst consensus outlook seem bearish, as a -13% fall in profits is expected in the upcoming year compared with the past 5-year average growth rate of 2.8%. Currently with a railing-twelve-month profit of NZ$2m, the consensus growth rate suggests that earnings will drop to NZ$2m by 2019. Below is a brief commentary around Serko’s earnings outlook going forward, which may give you a sense of market sentiment for the company. Readers that are interested in understanding the company beyond these figures should research its fundamentals here.
Check out our latest analysis for Serko
How will Serko perform in the near future?
Longer term expectations from the 1 analysts covering SKO’s stock 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. To reduce the year-on-year volatility of analyst earnings forecast, I’ve inserted a line of best fit through the expected earnings figures to determine the annual growth rate from the slope of the line.
From the current net income level of NZ$2m and the final forecast of NZ$7m by 2021, the annual rate of growth for SKO’s earnings is 38%. This leads to an EPS of NZ$0.082 in the final year of projections relative to the current EPS of NZ$0.025. Growth in the bottom line seems to suggest reduction in costs rather than purely top-line expansion as earnings is increasing at a faster rate. In 2021, SKO’s profit margin will have expanded from 10% to 14%.
Next Steps:
Future outlook is only one aspect when you’re building an investment case for a stock. For Serko, there are three relevant aspects 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 Serko 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 Serko 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 Serko? 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.