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In December 2018, China Machinery Engineering Corporation (HKG:1829) released its latest earnings announcement, which indicated that the business experienced a robust tailwind, eventuating to a double-digit earnings growth of 20%. Below is a brief commentary on my key takeaways on how market analysts view China Machinery Engineering's earnings growth outlook 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.
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Market analysts' prospects for next year seems rather muted, with earnings growing by a single digit 1.5%. The growth outlook in the following year seems much more buoyant with rates reaching double digit 14% compared to today’s earnings, and finally hitting CN¥2.8b by 2022.
Although it’s informative understanding the growth each year relative to today’s figure, it may be more insightful gauging the rate at which the earnings are growing every year, on average. The benefit of this approach is that we can get a better picture of the direction of China Machinery Engineering's earnings trajectory over the long run, irrespective of near term fluctuations, which may be more relevant for long term investors. To compute 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 9.6%. This means, we can expect China Machinery Engineering will grow its earnings by 9.6% every year for the next couple of years.
Next Steps:
For China Machinery Engineering, there are three essential aspects you should look at:
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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.
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Valuation: What is 1829 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 1829 is currently mispriced by the market.
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Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of 1829? 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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If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.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.