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In April 2019, DS Smith Plc (LON:SMDS) announced its most recent earnings update, which revealed that the company experienced a slight tailwind, eventuating to a single-digit earnings growth of 1.2%. Below is my commentary, albeit very simple and high-level, on how market analysts view DS Smith'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.
Analysts' outlook for the coming year seems positive, with earnings growing by a significant 97%. However, this positive earnings growth is not expected to last, with earnings facing a downward trajectory over the next couple of years, generating UK£420m in 2022.
Even though it is informative understanding the growth each year relative to today’s level, it may be more valuable to evaluate the rate at which the company is growing every year, on average. The advantage of this method is that it ignores near term flucuations and accounts for the overarching direction of DS Smith's earnings trajectory over time, fluctuate up and down. To compute 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 15%. This means, we can assume DS Smith will grow its earnings by 15% every year for the next few years.
For DS Smith, I've compiled three fundamental aspects you should look at:
- 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.
- Valuation: What is SMDS 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 SMDS is currently mispriced by the market.
- Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of SMDS? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.