The latest earnings release Dr Reddy’s Laboratories Limited’s (NSEI:DRREDDY) announced in September 2017 suggested that the company experienced a significant headwind with earnings deteriorating by -39.84%. Today I want to provide a brief commentary on how market analysts view Dr. Reddy’s Laboratories’s earnings growth trajectory over the next couple of 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. See our latest analysis for Dr. Reddy’s Laboratories
Market analysts’ prospects for next year seems positive, with earnings increasing by a robust 42.02%. This growth in earnings is expected to continue at an exponential rate, bringing the bottom line up to ₹29,177.3M by 2020.
Although it is useful to be aware of the rate of growth year by year relative to today’s value, it may be more insightful estimating the rate at which the earnings are moving on average every year. The pro of this approach is that we can get a bigger picture of the direction of Dr. Reddy’s Laboratories’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 33.62%. This means that, we can presume Dr. Reddy’s Laboratories will grow its earnings by 33.62% every year for the next couple of years.
Next Steps:
For Dr. Reddy’s Laboratories, I’ve compiled three important factors you should further examine:
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 DRREDDY 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 DRREDDY is currently mispriced by the market.
3. Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of DRREDDY? 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.