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Electrocomponents plc (LON:ECM): What Does The Future Look Like?

After Electrocomponents plc’s (LON:ECM) earnings announcement in March 2018, analyst consensus outlook appear cautiously subdued, with earnings expected to grow by 0.3% in the upcoming year against the higher past 5-year average growth rate of 13%. Currently with trailing-twelve-month earnings of UK£150m, we can expect this to reach UK£150m by 2019. Below is a brief commentary around Electrocomponents’s earnings outlook going forward, which may give you a sense of market sentiment for the company. For those keen to understand more about other aspects of the company, you can research its fundamentals here.

Check out our latest analysis for Electrocomponents

Can we expect Electrocomponents to keep growing?

Over the next three years, it seems the consensus view of the 10 analysts covering ECM is skewed towards the positive 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 ECM’s earnings growth over these next few years.

LSE:ECM Future Profit November 20th 18

This results in an annual growth rate of 8.8% based on the most recent earnings level of UK£150m to the final forecast of UK£190m by 2021. This leads to an EPS of £0.43 in the final year of projections relative to the current EPS of £0.34. The primary reason for earnings growth is due to cost-cutting initiatives, since top-line is predicted to rise at a slower pace than earnings. Margins is currently sitting at 8.8%, which is expected to expand to 9.2% by 2021.

Next Steps:

Future outlook is only one aspect when you’re building an investment case for a stock. For Electrocomponents, I’ve compiled three pertinent factors 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 Electrocomponents 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 Electrocomponents is currently mispriced by the market.
  3. Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Electrocomponents? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.