Is a stock with high projected EPS growth a red flag?
I'm analyzing a stock with good growth drivers, in the emerging market movie space.
Everything looks good, except the projected consensus EPS growth rate for the new few years is about 40% each year. One thing to note is that it is based on only 3 analysts as its not well covered. Market cap of 1B USD.
In general, would it be tough to pitch a company with such a high consensus EPS growth figure?
Why are you pitching the consensus growth figure? Do you work for one of the firms making up the consensus?
What the consensus thinks isn't near as important as what you think. Ignore the consensus while drawing up your own conclusion. Then figure out where you differ, and when you pitch the stock, be clear on where you're more bullish / more bearish.
To directly answer your question: No, pitching a stock with a high EPS growth figure isn't tough if a) there are clear reasons for the high growth, and b) valuations are still reasonable.
Thanks for your thoughts. But if I think the growth drivers will yield similar growth rates, and don't have anything extra on top of that, then I should walk away considering the consensus is already predicting 40% EPS growth right?
Side question: If the three analysts providing the forecasts are predicting a 35% upside for the stock, does that mean that the 40% EPS growth is not the actual market consensus, and I would be OK with predicting a similar or slightly lower growth figure?
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