The Reject Shop Limited (ASX:TRS): Is It A Good Long Term Opportunity?
The latest earnings release The Reject Shop Limited’s (ASX:TRS) announced in July 2018 confirmed that the business experienced a strong tailwind, leading to a double-digit earnings growth of 34%. Below is a brief commentary on my key takeaways on how market analysts view Reject Shop’s earnings growth outlook over the next couple of years and whether the future looks even brighter than the past. I will be looking at earnings excluding extraordinary items to exclude one-off activities to get a better understanding of the underlying drivers of earnings.
See our latest analysis for Reject Shop
Market analysts’ prospects for this coming year seems rather muted, with earnings rising by a single digit 2.8%. The following year doesn’t look much more exciting, though earnings does reach AU$20m in 2021.
While it is informative knowing the growth rate each year relative to today’s figure, it may be more insightful evaluating the rate at which the earnings are moving every year, on average. The benefit of this method is that we can get a bigger picture of the direction of Reject Shop’s earnings trajectory over the long run, irrespective of near term fluctuations, which may be more relevant for long term investors. To calculate this rate, I put 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 6.3%. This means that, we can expect Reject Shop will grow its earnings by 6.3% every year for the next couple of years.
Next Steps:
For Reject Shop, I’ve put together three fundamental 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 TRS 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 TRS is currently mispriced by the market.
Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of TRS? 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.
