Watsco, Inc.’s (NYSE:WSO) latest earnings announcement in December 2018 signalled that the business experienced a robust tailwind, eventuating to a double-digit earnings growth of 17%. Below, I’ve laid out key growth figures on how market analysts perceive Watsco’s earnings growth trajectory over the next few years and whether the future looks even brighter than the past. I will be using net income excluding extraordinary items in order to exclude one-off volatility which I am not interested in.
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Market analysts’ prospects for the coming year seems rather muted, with earnings climbing by a single digit 3.6%. The growth outlook in the following year seems much more buoyant with rates reaching double digit 12% compared to today’s earnings, and finally hitting US$272m by 2022.
Even though it is informative understanding the rate of growth each year relative to today’s figure, it may be more beneficial to evaluate the rate at which the company is moving on average every year. The advantage of this method is that we can get a better picture of the direction of Watsco’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’ve inserted 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 6.1%. This means that, we can assume Watsco will grow its earnings by 6.1% every year for the next couple of years.
For Watsco, there are three relevant factors you should look at:
- 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 WSO 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 WSO is currently mispriced by the market.
- Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of WSO? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
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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.