Elementis plc's (LON:ELM) latest earnings announcement in December 2018 suggested that the company faced a substantial headwind with earnings declining by -56%. Below is my commentary, albeit very simple and high-level, on how market analysts perceive Elementis's earnings growth trajectory over the next few years and whether the future looks brighter. Note that I will be looking at net income excluding extraordinary items to get a better understanding of the underlying drivers of earnings.
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Analysts' expectations for the coming year seems optimistic, with earnings rising by a significant 88%. Earnings are predicted to shoot up to around US$101m in the following year before plateauing, heading into 2022.
While it’s informative understanding the growth rate year by year relative to today’s figure, it may be more beneficial evaluating the rate at which the company is growing every year, on average. The benefit of this method is that it removes the impact of near term flucuations and accounts for the overarching direction of Elementis's earnings trajectory over time, which may be more relevant for long term investors. To calculate this rate, I've appended 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 20%. This means that, we can expect Elementis will grow its earnings by 20% every year for the next couple of years.
For Elementis, there are three key 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 ELM 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 ELM is currently mispriced by the market.
- Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of ELM? 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.