Culp, Inc.'s (NYSE:CULP) most recent earnings update in July 2019 signalled that the company faced a significant headwind with earnings falling by -73%. Today I want to provide a brief commentary on how market analysts perceive Culp's earnings growth trajectory over the next couple of years and whether the future looks brighter. 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.
Analysts' outlook for this coming year seems positive, with earnings rising by a significant 90%. This strong growth in earnings is expected to continue, bringing the bottom line up to US$16m by 2022.
Although it’s useful to be aware of the growth rate each year relative to today’s figure, it may be more valuable estimating the rate at which the earnings are growing on average every year. The advantage of this method is that we can get a bigger picture of the direction of Culp'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 20%. This means that, we can assume Culp will grow its earnings by 20% every year for the next few years.
For Culp, there are three important factors 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 CULP 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 CULP is currently mispriced by the market.
- Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of CULP? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
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