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Paragon Banking Group PLC (LON:PAG): Are Analysts Right About The Drop In Earnings?

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Looking at Paragon Banking Group PLC's (LON:PAG) earnings update in March 2019, it seems that analyst forecasts are fairly pessimistic, as a 4.5% fall in profits is expected in the upcoming year against the past 5-year average growth rate of 8.3%. Currently with a trailing-twelve-month profit of UK£146m, the consensus growth rate suggests that earnings will drop to UK£139m by 2020. In this article, I've outline a few earnings growth rates to give you a sense of the market sentiment for Paragon Banking Group in the longer term. Investors wanting to learn more about other aspects of the company should research its fundamentals here.

View our latest analysis for Paragon Banking Group

Exciting times ahead?

Over the next three years, it seems the consensus view of the 10 analysts covering PAG is skewed towards the positive sentiment. Since forecasting becomes more difficult further into the future, broker analysts generally project out to around three years. To reduce the year-on-year volatility of analyst earnings forecast, I've inserted a line of best fit through the expected earnings figures to determine the annual growth rate from the slope of the line.

LSE:PAG Past and Future Earnings, September 11th 2019
LSE:PAG Past and Future Earnings, September 11th 2019

This results in an annual growth rate of 6.7% based on the most recent earnings level of UK£146m to the final forecast of UK£159m by 2022. EPS reaches £0.61 in the final year of forecast compared to the current £0.56 EPS today. Analysts are predicting this high revenue growth to squeeze profit margins over time, from 47% to 46% by the end of 2022.

Next Steps:

Future outlook is only one aspect when you're building an investment case for a stock. For Paragon Banking Group, I've compiled three pertinent aspects you should further research:

  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 Paragon Banking Group 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 Paragon Banking Group is currently mispriced by the market.

  3. Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Paragon Banking Group? 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 editorial-team@simplywallst.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. Thank you for reading.