What Should We Expect From Royal Mail plc’s (LON:RMG) Earnings In The Next Couple Of Years?
The most recent earnings update Royal Mail plc’s (LSE:RMG) released in March 2018 signalled that the company experienced a minor headwind with earnings deteriorating from UK£272.00M to UK£259.00M, a change of -4.78%. Below is my commentary, albeit very simple and high-level, on how market analysts perceive Royal Mail’s earnings growth outlook over the next few years and whether the future looks brighter. I will be using net income excluding extraordinary items in order to exclude one-off volatility which I am not interested in. View our latest analysis for Royal Mail
Market analysts’ prospects for next year seems optimistic, with earnings increasing by a robust 48.70%. However, earnings is expected to fall slightly in the following year before rising again to UK£406.72M in 2021.
Even though it is helpful to understand the growth each year relative to today’s figure, it may be more insightful estimating the rate at which the earnings are rising or falling every year, on average. The benefit of this approach is that we can get a bigger picture of the direction of Royal Mail’s earnings trajectory over the long run, irrespective of near term fluctuations, be more volatile. To compute this rate, I put a line of best fit through analyst consensus of forecasted earnings. The slope of this line is the rate of earnings growth, which in this case is 10.50%. This means, we can anticipate Royal Mail will grow its earnings by 10.50% every year for the next couple of years.
Next Steps:
For Royal Mail, I’ve compiled three essential 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 RMG 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 RMG is currently mispriced by the market.
Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of RMG? 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 pass 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.
