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One thing we could say about the analysts on PPHE Hotel Group Limited (LON:PPH) - they aren't optimistic, having just made a major negative revision to their near-term (statutory) forecasts for the organization. Both revenue and earnings per share (EPS) estimates were cut sharply as analysts factored in the latest outlook for the business, concluding that they were too optimistic previously.
Following the downgrade, the latest consensus from PPHE Hotel Group's three analysts is for revenues of UK£197m in 2021, which would reflect a substantial 94% improvement in sales compared to the last 12 months. The loss per share is anticipated to greatly reduce in the near future, narrowing 72% to UK£0.53. Yet prior to the latest estimates, the analysts had been forecasting revenues of UK£227m and losses of UK£0.30 per share in 2021. So there's been quite a change-up of views after the recent consensus updates, with the analysts making a serious cut to their revenue forecasts while also expecting losses per share to increase.
Analysts lifted their price target 5.1% to €15.12, implicitly signalling that lower earnings per share are not expected to have a longer-term impact on the stock's value. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. Currently, the most bullish analyst values PPHE Hotel Group at €17.26 per share, while the most bearish prices it at €10.97. This shows there is still some diversity in estimates, but analysts don't appear to be totally split on the stock as though it might be a success or failure situation.
Looking at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up against both past performance and industry growth estimates. The analysts are definitely expecting PPHE Hotel Group's growth to accelerate, with the forecast 94% annualised growth to the end of 2021 ranking favourably alongside historical growth of 0.6% per annum over the past five years. Compare this with other companies in the same industry, which are forecast to grow their revenue 12% annually. Factoring in the forecast acceleration in revenue, it's pretty clear that PPHE Hotel Group is expected to grow much faster than its industry.
The Bottom Line
The most important thing to note from this downgrade is that the consensus increased its forecast losses this year, suggesting all may not be well at PPHE Hotel Group. Unfortunately, analysts also downgraded their revenue estimates, although our data indicates revenues are expected to perform better than the wider market. The increasing price target is not intuitively what we would expect to see, given these downgrades, and we'd suggest shareholders revisit their investment thesis before making a decision.
Even so, the longer term trajectory of the business is much more important for the value creation of shareholders. At Simply Wall St, we have a full range of analyst estimates for PPHE Hotel Group going out to 2025, and you can see them free on our platform here.
Of course, seeing company management invest large sums of money in a stock can be just as useful as knowing whether analysts are downgrading their estimates. So you may also wish to search this free list of stocks that insiders are buying.
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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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