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Will Serko Limited’s (NZSE:SKO) Earnings Grow Over The Next Few Years?

Serko Limited’s (NZSE:SKO) most recent earnings announcement in March 2018 confirmed that the business finally turned profitable after delivering negative earnings on average over the last few years. Today I want to provide a brief commentary on how market analysts predict Serko’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.

See our latest analysis for Serko

Market analysts’ consensus outlook for next year seems pessimistic, with earnings declining by a double-digit -13.3%. However, the next few years seem to illustrate a completely different picture, with earnings expected to more than double relative to the most recent earnings level in 2018, reaching NZ$6.6m in 2021.

NZSE:SKO Future Profit September 27th 18
NZSE:SKO Future Profit September 27th 18

Even though it’s informative understanding the growth rate year by year relative to today’s value, it may be more insightful to estimate the rate at which the company is growing every year, on average. The benefit of this approach is that we can get a better picture of the direction of Serko’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 the forecasted earnings by market analysts. The slope of this line is the rate of earnings growth, which in this case is 37.6%. This means that, we can assume Serko will grow its earnings by 37.6% every year for the next few years.

Next Steps:

For Serko, I’ve put together three pertinent factors you should further research:

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  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 SKO 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 SKO is currently mispriced by the market.

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