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Spirax-Sarco Engineering plc (LON:SPX): Should The Future Outlook Worry You?

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Spirax-Sarco Engineering plc's (LON:SPX) released its most recent earnings update in March 2019, which confirmed that the company benefited from a strong tailwind, eventuating to a double-digit earnings growth of 42%. Below is a brief commentary on my key takeaways on how market analysts predict Spirax-Sarco Engineering's earnings growth trajectory over the next few years and whether the future looks even brighter than the past. Note that I will be looking at net income excluding extraordinary items to get a better understanding of the underlying drivers of earnings.

Check out our latest analysis for Spirax-Sarco Engineering

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Market analysts' prospects for the coming year seems pessimistic, with earnings declining by a double-digit -25%. In the next couple of years, earnings are predicted to continue to be below today's level, with a decline of -17% in 2021, eventually reaching UK£184m in 2022.

LSE:SPX Past and Future Earnings, July 17th 2019
LSE:SPX Past and Future Earnings, July 17th 2019

Although it’s helpful to understand the growth rate each year relative to today’s level, it may be more insightful to gauge the rate at which the earnings are rising or falling every year, on average. The benefit of this technique is that it removes the impact of near term flucuations and accounts for the overarching direction of Spirax-Sarco Engineering's earnings trajectory over time, which may be more relevant for long term investors. To compute 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 -3.9%. This means, we can expect Spirax-Sarco Engineering will chip away at a rate of -3.9% every year for the next couple of years.

Next Steps:

For Spirax-Sarco Engineering, there are three key aspects you should further examine:

  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 SPX 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 SPX is currently mispriced by the market.

  3. Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of SPX? 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 editorial-team@simplywallst.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.