The latest earnings release Melbourne IT Limited’s (ASX:MLB) announced in December 2017 revealed that the company benefited from a robust tailwind, eventuating to a double-digit earnings growth of 30.11%. Below is my commentary, albeit very simple and high-level, on how market analysts perceive Melbourne IT’s earnings growth trajectory over the next few years and whether the future looks even brighter than the past. I will be using net income excluding extraordinary items in order to exclude one-off volatility which I am not interested in. See our latest analysis for Melbourne IT
Market analysts’ prospects for next year seems pessimistic, with earnings reducing by a double-digit -10.58%. However, the next few years seem to illustrate a completely different picture, with expected earnings growth rates reaching double digit 93.94% compared to today’s level and continues to increase.
Although it is helpful to be aware of the growth rate year by year relative to today’s value, it may be more insightful evaluating the rate at which the earnings are growing every year, on average. The benefit of this technique is that it removes the impact of near term flucuations and accounts for the overarching direction of Melbourne IT’s earnings trajectory over time, which may be more relevant for long term investors. To calculate this rate, I’ve inserted 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 30.90%. This means, we can assume Melbourne IT will grow its earnings by 30.90% every year for the next couple of years.
Next Steps:
For Melbourne IT, 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 MLB 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 MLB 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 MLB? 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 pass 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.