The most recent earnings update Capgemini SE’s (EPA:CAP) released in December 2018 signalled that the company faced a substantial headwind with earnings falling by -11%. Today I want to provide a brief commentary on how market analysts view Capgemini’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.
Analysts’ expectations for this coming year seems buoyant, with earnings climbing by a robust 24%. This growth seems to continue into the following year with rates arriving at double digit 40% compared to today’s earnings, and finally hitting €1.1b by 2022.
Although it is helpful to be aware of the growth rate each year relative to today’s level, it may be more beneficial to gauge the rate at which the company is growing on average every year. The advantage of this approach is that it ignores near term flucuations and accounts for the overarching direction of Capgemini’s earnings trajectory over time, 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 14%. This means, we can expect Capgemini will grow its earnings by 14% every year for the next couple of years.
For Capgemini, I’ve put together three fundamental aspects you should further research:
- 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 CAP 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 CAP is currently mispriced by the market.
- Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of CAP? 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 firstname.lastname@example.org. 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.