The latest earnings update Sotheby's (NYSE:BID) released in December 2018 confirmed that the business experienced a minor headwind with earnings declining from US$117m to US$107m, a change of -8.6%. Today I want to provide a brief commentary on how market analysts perceive Sotheby's's earnings growth outlook over the next few years and whether the future looks brighter. 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.
Analysts' expectations for the upcoming year seems optimistic, with earnings expanding by a robust 19%. This growth seems to continue into the following year with rates arriving at double digit 29% compared to today’s earnings, and finally hitting US$156m by 2022.
While it is helpful to be aware of the growth rate year by year relative to today’s figure, it may be more valuable evaluating the rate at which the earnings are rising or falling on average every year. The advantage of this technique is that it removes the impact of near term flucuations and accounts for the overarching direction of Sotheby's's earnings trajectory over time, which may be more relevant for long term investors. To calculate this rate, I've appended 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 12%. This means, we can presume Sotheby's will grow its earnings by 12% every year for the next couple of years.
For Sotheby's, 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 BID 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 BID is currently mispriced by the market.
- Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of BID? 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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