Ramsay Health Care Limited (ASX:RHC): What Can We Expect From This High Growth Stock?

Simply Wall St

Ramsay Health Care Limited's (ASX:RHC) released its most recent earnings update in September 2019, which revealed that the company benefited from a robust tailwind, leading to a double-digit earnings growth of 42%. Below is my commentary, albeit very simple and high-level, on how market analysts perceive Ramsay Health Care's earnings growth trajectory over the next few 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 Ramsay Health Care

Analysts' expectations for the upcoming year seems rather muted, with earnings expanding by a single digit 9.1%. The growth outlook in the following year seems much more optimistic with rates generating double digit 19% compared to today’s earnings, and finally hitting AU$649m by 2022.

ASX:RHC Past and Future Earnings, September 15th 2019

Even though it’s informative knowing the growth rate each year relative to today’s level, it may be more valuable gauging the rate at which the business is growing on average every year. The pro of this approach is that it removes the impact of near term flucuations and accounts for the overarching direction of Ramsay Health Care'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 the forecasted earnings by market analysts. The slope of this line is the rate of earnings growth, which in this case is 6.8%. This means that, we can presume Ramsay Health Care will grow its earnings by 6.8% every year for the next couple of years.

Next Steps:

For Ramsay Health Care, there are three important aspects you should further research:

  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 RHC 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 RHC is currently mispriced by the market.
  3. Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of RHC? 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 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.