GSX Techedu Inc. (NYSE:GSX) shareholders will have a reason to smile today, with the analysts making substantial upgrades to this year's statutory forecasts. The consensus estimated revenue numbers rose, with their view now clearly much more bullish on the company's business prospects. Investors have been pretty optimistic on GSX Techedu too, with the stock up 13% to CN¥41.98 over the past week. We'll be curious to see if these new estimates convince the market to lift the stock price higher still.
Following the upgrade, the current consensus from GSX Techedu's ten analysts is for revenues of CN¥6.7b in 2020 which - if met - would reflect a substantial 113% increase on its sales over the past 12 months. Per-share earnings are expected to jump 84% to CN¥2.65. Before this latest update, the analysts had been forecasting revenues of CN¥6.1b and earnings per share (EPS) of CN¥2.45 in 2020. The most recent forecasts are noticeably more optimistic, with a nice gain to revenue estimates and a lift to earnings per share as well.
Despite these upgrades, the analysts have not made any major changes to their price target of CN¥299, suggesting that the higher estimates are not likely to have a long term impact on what the stock is worth. The consensus price target is just an average of individual analyst targets, so - it could be handy to see how wide the range of underlying estimates is. The most optimistic GSX Techedu analyst has a price target of CN¥355 per share, while the most pessimistic values it at CN¥139. This is a fairly broad spread of estimates, suggesting that the analysts are forecasting a wide range of possible outcomes for the business.
Taking a look at the bigger picture now, one of the ways we can understand these forecasts is to see how they compare to both past performance and industry growth estimates. It's pretty clear that there is an expectation that GSX Techedu's revenue growth will slow down substantially, with revenues next year expected to grow 113%, compared to a historical growth rate of 405% over the past year. Juxtapose this against the other companies in the industry with analyst coverage, which are forecast to grow their revenues (in aggregate) 20% next year. Even after the forecast slowdown in growth, it seems obvious that GSX Techedu is also expected to grow faster than the wider industry.
The Bottom Line
The most important thing to take away from this upgrade is that analysts upgraded their earnings per share estimates for this year, expecting improving business conditions. They also upgraded their revenue estimates for this year, and sales are expected to grow faster than the wider market. Seeing the dramatic upgrade to this year's forecasts, it might be time to take another look at GSX Techedu.
Even so, the longer term trajectory of the business is much more important for the value creation of shareholders. We have estimates - from multiple GSX Techedu analysts - going out to 2024, and you can see them free on our platform here.
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