As Harvey Norman Holdings Limited (ASX:HVN) announced its recent earnings release on 30 June 2019, the consensus outlook from analysts appear pessimistic, with earnings expected to decline by 11% in the upcoming year compared with the past 5-year average growth rate of 11%. Currently with a trailing-twelve-month profit of AU$402m, the consensus growth rate suggests that earnings will drop to AU$357m by 2020. In this article, I've outline a few earnings growth rates to give you a sense of the market sentiment for Harvey Norman Holdings in the longer term. Readers that are interested in understanding the company beyond these figures should research its fundamentals here.
Exciting times ahead?
Over the next three years, it seems the consensus view of the 6 analysts covering HVN is skewed towards the negative sentiment. Broker analysts tend to forecast up to three years ahead due to a lack of clarity around the business trajectory beyond this. To understand the overall trajectory of HVN's earnings growth over these next fews years, I've fitted a line through these analyst earnings forecast to determine an annual growth rate from the slope.
From the current net income level of AU$402m and the final forecast of AU$382m by 2022, the annual rate of growth for HVN’s earnings is -2.3%. EPS reaches A$0.31 in the final year of forecast compared to the current A$0.35 EPS today. Contraction in the bottom line seems to suggest cost growth exceeding top-line growth of 19% in the next three years. With this high cost growth, margins is expected to contract from 18% to 10% by the end of 2022.
Future outlook is only one aspect when you're building an investment case for a stock. For Harvey Norman Holdings, I've compiled three fundamental factors 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 Harvey Norman Holdings 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 Harvey Norman Holdings is currently mispriced by the market.
- Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Harvey Norman Holdings? 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 firstname.lastname@example.org. 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. Thank you for reading.