Investors in AK Medical Holdings Limited (HKG:1789) had a good week, as its shares rose 10.0% to close at HK$15.84 following the release of its yearly results. It was a credible result overall, with revenues of CN¥927m and statutory earnings per share of CN¥0.25 both in line with analyst estimates, showing that AK Medical Holdings is executing in line with expectations. Earnings are an important time for investors, as they can track a company's performance, look at what the analysts are forecasting for next year, and see if there's been a change in sentiment towards the company. We've gathered the most recent statutory forecasts to see whether the analysts have changed their earnings models, following these results.
Taking into account the latest results, the current consensus from AK Medical Holdings's three analysts is for revenues of CN¥1.22b in 2020, which would reflect a huge 32% increase on its sales over the past 12 months. Statutory earnings per share are predicted to soar 21% to CN¥0.31. In the lead-up to this report, the analysts had been modelling revenues of CN¥1.08b and earnings per share (EPS) of CN¥0.33 in 2020. While revenue forecasts have increased substantially, the analysts are a little more pessimistic on earnings, suggesting that the growth in revenue does not come without cost.
Curiously, the consensus price target rose 40% to CN¥14.51. We can only conclude that the forecast revenue growth is expected to offset the impact of the expected fall in earnings. That's not the only conclusion we can draw from this data however, as some investors also like to consider the spread in estimates when evaluating analyst price targets. The most optimistic AK Medical Holdings analyst has a price target of CN¥18.67 per share, while the most pessimistic values it at CN¥7.26. Note the wide gap in analyst price targets? This implies to us that there is a fairly broad range of possible scenarios for the underlying business.
One way to get more context on these forecasts is to look at how they compare to both past performance, and how other companies in the same industry are performing. We can infer from the latest estimates that forecasts expect a continuation of AK Medical Holdings's historical trends, as next year's 32% revenue growth is roughly in line with 33% annual revenue growth over the past five years. Compare this with the wider industry, which analyst estimates (in aggregate) suggest will see revenues grow 21% next year. So it's pretty clear that AK Medical Holdings is forecast to grow substantially faster than its industry.
The Bottom Line
The most important thing to take away is that the analysts downgraded their earnings per share estimates, showing that there has been a clear decline in sentiment following these results. Pleasantly, they also upgraded their revenue estimates, and their forecasts suggest the business is expected to grow faster than the wider industry. There was also a nice increase in the price target, with the analysts clearly feeling that the intrinsic value of the business is improving.
Following on from that line of thought, we think that the long-term prospects of the business are much more relevant than next year's earnings. We have estimates - from multiple AK Medical Holdings analysts - going out to 2022, and you can see them free on our platform here.
You should always think about risks though. Case in point, we've spotted 1 warning sign for AK Medical Holdings you should be aware of.
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