Based on Softcat plc’s (LON:SCT) earnings update on 31 July 2018, analyst consensus outlook appear cautiously subdued, with profits predicted to rise by 6.6% next year compared with the higher past 5-year average growth rate of 16%. By 2019, we can expect Softcat’s bottom line to reach UK£59m, a jump from the current trailing-twelve-month UK£55m. I will provide a brief commentary around the figures and analyst expectations in the near term. For those interested in more of an analysis of the company, you can research its fundamentals here.

Check out our latest analysis for Softcat

What can we expect from Softcat in the longer term?

The longer term view from the 4 analysts covering SCT is one of positive sentiment. Generally, broker analysts tend to make predictions for up to three years given the lack of visibility beyond this point. 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 SCT’s earnings growth over these next few years.

This results in an annual growth rate of 6.1% based on the most recent earnings level of UK£55m to the final forecast of UK£67m by 2021. EPS reaches £0.34 in the final year of forecast compared to the current £0.28 EPS today. The main reason for growth is a result of revenue expansion of 8.0% exceeeding cost growth over time. Analysts are predicting this high revenue growth to squeeze profit margins over time, from 5.1% to 4.8% by the end of 2021.

Next Steps:

Future outlook is only one aspect when you’re building an investment case for a stock. For Softcat, I’ve put together three essential aspects you should look at:

1. 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.

2. Valuation: What is Softcat 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 Softcat is currently mispriced by the market.

3. Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Softcat? 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.