Alliance Pharma plc (LON:APH): Are Analysts’ Earnings Forecast Signalling Trouble Ahead?
The latest earnings release Alliance Pharma plc’s (AIM:APH) announced in December 2017 showed that the business benefited from a strong tailwind, eventuating to a high double-digit earnings growth of 59.79%. Below is a brief commentary on my key takeaways on how market analysts perceive Alliance Pharma’s earnings growth trajectory over the next couple of years and whether the future looks even brighter than the past. I will be using net income excluding extraordinary items in order to exclude one-off volatility which I am not interested in. View our latest analysis for Alliance Pharma
Market analysts’ consensus outlook for next year seems pessimistic, with earnings decreasing by a double-digit -21.48%. Over the medium term, earnings should continue to be below today’s level, with a decline of -19.41% in 2020, eventually reaching UK£23.30M in 2021.
Even though it is helpful to understand the growth rate year by year relative to today’s value, it may be more beneficial estimating the rate at which the earnings are rising or falling every year, on average. The pro of this technique is that it ignores near term flucuations and accounts for the overarching direction of Alliance Pharma’s earnings trajectory over time, which may be more relevant for long term investors. To calculate this rate, I put a line of best fit through the forecasted earnings by market analysts. The slope of this line is the rate of earnings growth, which in this case is -5.70%. This means that, we can presume Alliance Pharma will chip away at a rate of -5.70% every year for the next few years.
Next Steps:
For Alliance Pharma, I’ve put together three essential aspects you should further examine:
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 APH 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 APH is currently mispriced by the market.
Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of APH? 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.
