In September 2017, The Sage Group plc (LSE:SGE) announced its latest earnings update. Overall, analysts seem fairly confident, with profits predicted to increase by 28.33% next year relative to the past 5-year average growth rate of 0.91%. With net income at current levels of £257.0M, we should see this rise to £329.8M in 2018. In this article, I’ve outline a few earnings growth rates to give you a sense of the market sentiment for SGE in the longer term. Readers that are interested in understanding SGE beyond these figures should research its fundamentals here. View our latest analysis for Thege Group
What can we expect from SGE in the longer term?
Longer term expectations from the 15 analysts covering SGE’s stock is one of positive sentiment. Broker analysts tend to forecast up to three years ahead due to a lack of clarity around the business trajectory beyond this. 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.
This results in an annual growth rate of 12.93% based on the most recent earnings level of £257.0M to the final forecast of £411.6M by 2020. This leads to an EPS of £0.39 in the final year of projections relative to the current EPS of £0.24. The bottom-line growth seems to be caused by cost-cutting initiatives, since top-line is predicted to rise at a slower pace than earnings. In 2020, SGE’s profit margin will have expanded from 14.99% to 18.55%.
Future outlook is only one aspect when you’re building an investment case for a stock. For Thege Group, there are three essential aspects you should look at:
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 SGE 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 SGE is currently mispriced by the market.
3. Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of SGE? 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 pass 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.