Based on Alio Gold Inc’s (TSE:ALO) earnings update in June 2018, analyst forecasts seem bearish, with profits predicted to drop by -6.4% next year. Though this pessimism is not unfounded, given the negative past 5-year average earnings growth. With trailing-twelve-month net income at current levels of US$9m, the consensus growth rate suggests that earnings will decline to US$8m by 2019. Below is a brief commentary around Alio Gold’s earnings outlook going forward, which may give you a sense of market sentiment for the company. For those interested in more of an analysis of the company, you can research its fundamentals here.
Exciting times ahead?
The longer term view from the 4 analysts covering ALO is one of positive sentiment. Since forecasting becomes more difficult further into the future, broker analysts generally project out to around three years. 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 ALO’s earnings growth over these next few years.
From the current net income level of US$12m and the final forecast of US$12m by 2021, the annual rate of growth for ALO’s earnings is 16%. However, if we exclude extraordinary items from net income, we see that earnings is projected to fall over time, resulting in an EPS of $0.073 in the final year of forecast compared to the current $0.30 EPS today. The bottom-line growth seems to be caused by revenue expansion of 27% exceeeding cost growth over time. As revenues is expected to outpace earnings, analysts expect margins to contract from the current 11% to 4.6% by the end of 2021.
Future outlook is only one aspect when you’re building an investment case for a stock. For Alio Gold, there are three important 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 Alio Gold 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 Alio Gold is currently mispriced by the market.
- Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Alio Gold? 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 email@example.com.