LONDON -- When weighing up a potential investment, it's useful to look forward rather than backwards. If you buy a stake in a business, it's the future profits that count -- and the stock market will value your shares based on future expectations.
With that in mind, it can be helpful to review what expert City analysts are expecting a company to earn in the coming years. These expectations can be compared to the share price, to give you a better idea of how the stock market is valuing the business.
Today I'm looking at the EPS forecasts for BT (BT.A -0.52%) (BT), the FTSE 100 telecom giant. All my figures are courtesy of S&P Capital IQ.
Analysts expect BT to earn 26 pence per share in the next 12 months. Which means that compared to today's share price of 311 pence, the market is valuing BT's shares on a forward price-to-earnings multiple of 12.
Looking ahead, the consensus then calls for an improvement in BT's earnings to 28 pence per share for 2015, and then 30 pence in 2016. The data indicates BT's revenues meanwhile may be flat between now and 2016, at around 18 billion pounds.
These fairly muted growth expectations explain why BT trades at a relatively modest earnings multiple, with the market anticipating very little to change in BT's underlying business. But are investors failing to appreciate the potential of deals such as next season's expansion into Premier League broadcasting, or is it time to hang up on the telecoms giant?
Whether these projections and the current valuation make the shares of BT fairly priced is for you to decide.
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