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The most recent earnings update Power Integrations, Inc.’s (NASDAQ:POWI) released in December 2018 revealed that the company benefited from a significant tailwind, more than doubling its earnings from the prior year. Below is a brief commentary on my key takeaways on how market analysts view Power Integrations’s earnings growth trajectory over the next couple of 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.
Analysts’ outlook for the upcoming year seems pessimistic, with earnings falling by a double-digit -43%. However, the following year shows a contrast, with earnings growth becoming positive at 2.2% compared to today’s earnings level. Earnings are then expected to fall to US$65m in 2022.
While it is informative understanding the growth rate each year relative to today’s level, it may be more beneficial to analyze the rate at which the earnings are rising or falling on average every year. The advantage of this method is that it removes the impact of near term flucuations and accounts for the overarching direction of Power Integrations’s earnings trajectory over time, be more volatile. To calculate this rate, I’ve appended 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 0.8%. This means, we can presume Power Integrations will grow its earnings by 0.8% every year for the next few years.
For Power Integrations, there are three relevant aspects 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 POWI 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 POWI is currently mispriced by the market.
- Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of POWI? 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. On rare occasion, data errors may occur. Thank you for reading.