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The latest earnings update Auto Trader Group plc (LON:AUTO) released in March 2019 showed that the business benefited from a strong tailwind, eventuating to a double-digit earnings growth of 15%. Below is a brief commentary on my key takeaways on how market analysts perceive Auto Trader Group's earnings growth trajectory over the next few years and whether the future looks even brighter than the past. I will be looking at earnings excluding extraordinary items to exclude one-off activities to get a better understanding of the underlying drivers of earnings.
Market analysts' prospects for next year seems rather subdued, with earnings expanding by a single digit 5.7%. The growth outlook in the following year seems much more optimistic with rates generating double digit 15% compared to today’s earnings, and finally hitting UK£245m by 2022.
While it’s useful to be aware of the growth year by year relative to today’s value, it may be more insightful to determine the rate at which the company is growing every year, on average. The pro of this technique is that we can get a better picture of the direction of Auto Trader Group's earnings trajectory over the long run, irrespective of near term fluctuations, which may be more relevant for long term investors. To calculate this rate, I put 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 7.2%. This means that, we can expect Auto Trader Group will grow its earnings by 7.2% every year for the next couple of years.
For Auto Trader Group, I've compiled three pertinent factors you should further examine:
- 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 AUTO 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 AUTO is currently mispriced by the market.
- Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of AUTO? 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 email@example.com. 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.