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Persimmon Plc's (LON:PSN) announced its latest earnings update in December 2018, which indicated that the business gained from a strong tailwind, leading to a double-digit earnings growth of 13%. Below is a brief commentary on my key takeaways on how market analysts perceive Persimmon's earnings growth trajectory over the next few years and whether the future looks even brighter than the past. Note that I will be looking at net income excluding extraordinary items to get a better understanding of the underlying drivers of earnings.
Market analysts' prospects for the coming year seems pessimistic, with earnings reducing by -4.6%. Over the medium term, earnings should continue to be below today's level, with a fall of -3.2% in 2021, eventually reaching UK£858m in 2022.
While it is helpful to be aware of the rate of growth each year relative to today’s value, it may be more beneficial to gauge the rate at which the earnings are growing on average every year. The pro of this approach is that we can get a better picture of the direction of Persimmon'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 -1.1%. This means, we can presume Persimmon will chip away at a rate of -1.1% every year for the next few years.
For Persimmon, I've compiled three key aspects 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 PSN 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 PSN is currently mispriced by the market.
- Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of PSN? 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 email@example.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.