Collection House Limited (ASX:CLH): Set To Experience A Decrease In Earnings?
On 30 June 2019, Collection House Limited (ASX:CLH) released its most recent earnings update. Generally, analyst forecasts seem bearish, with earnings expected to decline by 11% in the upcoming year compared with the past 5-year average growth rate of 7.0%. With trailing-twelve-month net income at current levels of AU$31m, the consensus growth rate suggests that earnings will decline to AU$27m by 2020. In this article, I've outline a few earnings growth rates to give you a sense of the market sentiment for Collection House in the longer term. For those keen to understand more about other aspects of the company, you can research its fundamentals here.
See our latest analysis for Collection House
Can we expect Collection House to keep growing?
The longer term view from the 3 analysts covering CLH is one of negative sentiment. Generally, broker analysts tend to make predictions for up to three years given the lack of visibility beyond this point. I've plotted out each year's earnings expectations and inserted a line of best fit to calculate an annual growth rate from the slope in order to understand the overall trajectory of CLH's earnings growth over these next few years.
This results in an annual growth rate of -0.07% based on the most recent earnings level of AU$31m to the final forecast of AU$31m by 2022. EPS reaches A$0.21 in the final year of forecast compared to the current A$0.22 EPS today. The primary reason for earnings contraction is due to cost growth exceeding top-line growth of 5.2% in the next three years. With this high cost growth, margins is expected to contract from 19% to 16% by the end of 2022.
Next Steps:
Future outlook is only one aspect when you're building an investment case for a stock. For Collection House, there are three important factors 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 Collection House 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 Collection House is currently mispriced by the market.
Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Collection House? 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.
