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HomeServe plc (LON:HSV): Is It A Good Long Term Opportunity?

Tammie Asher

HomeServe plc’s (LON:HSV) most recent earnings update in March 2018 indicated that the business benefited from a robust tailwind, eventuating to a double-digit earnings growth of 29.44%. Below, I’ve presented key growth figures on how market analysts view HomeServe’s earnings growth outlook over the next couple of years and whether the future looks even brighter than the past. Note that I will be looking at net income excluding extraordinary items to get a better understanding of the underlying drivers of earnings.

Check out our latest analysis for HomeServe

Market analysts’ consensus outlook for the upcoming year seems optimistic, with earnings rising by a robust 11.27%. This growth seems to continue into the following year with rates reaching double digit 25.36% compared to today’s earnings, and finally hitting UK£131.18m by 2021.

LSE:HSV Future Profit August 17th 18

Although it is helpful to understand the rate of growth year by year relative to today’s value, it may be more beneficial to estimate the rate at which the business is moving on average every year. The advantage of this approach is that we can get a bigger picture of the direction of HomeServe’s earnings trajectory over the long run, irrespective of near term fluctuations, which may be more relevant for long term investors. To compute 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 10.47%. This means, we can anticipate HomeServe will grow its earnings by 10.47% every year for the next few years.

Next Steps:

For HomeServe, I’ve put together three fundamental factors you should look at:

  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 HSV 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 HSV is currently mispriced by the market.
  3. Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of HSV? 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.