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In September 2018, Compass Group PLC (LON:CPG) announced its latest earnings update, which confirmed that the business faced a minor headwind with earnings declining from UK£1.2b to UK£1.1b, a change of -3.1%. Today I want to provide a brief commentary on how market analysts perceive Compass Group’s earnings growth trajectory over the next couple of years and whether the future looks brighter. Note that I will be looking at net income excluding extraordinary items to get a better understanding of the underlying drivers of earnings.
Analysts’ expectations for the coming year seems buoyant, with earnings expanding by a robust 15%. This growth seems to continue into the following year with rates reaching double digit 23% compared to today’s earnings, and finally hitting UK£1.4b by 2022.
Even though it is helpful to understand the growth each year relative to today’s level, it may be more insightful to determine the rate at which the company is growing on average every year. The benefit of this method is that it ignores near term flucuations and accounts for the overarching direction of Compass Group’s earnings trajectory over time, which may be more relevant for long term investors. To calculate this rate, I’ve appended 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 7.8%. This means that, we can anticipate Compass Group will grow its earnings by 7.8% every year for the next few years.
For Compass Group, there are three important factors 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 CPG 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 CPG is currently mispriced by the market.
- Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of CPG? 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 email@example.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. On rare occasion, data errors may occur. Thank you for reading.