There's been a major selloff in Cheetah Mobile Inc. (NYSE:CMCM) shares in the week since it released its first-quarter report, with the stock down 22% to US$3.36. It looks like a credible result overall - although revenues of CN¥1.1b were what analysts expected, Cheetah Mobile surprised by delivering a profit of CN¥8.10 per share, an impressive 75% above what analysts had forecast. Analysts typically update their forecasts at each earnings report, and we can judge from their estimates whether their view of the company has changed or if there are any new concerns to be aware of. Readers will be glad to know we've aggregated the latest forecasts to see whether analysts have changed their mind on Cheetah Mobile after the latest results.
Taking into account the latest results, the current consensus, from the three analysts covering Cheetah Mobile, is for revenues of CN¥4.20b in 2019, which would reflect a noticeable 3.5% reduction in Cheetah Mobile's sales over the past 12 months. Earnings per share are forecast to plunge 91% to CN¥0.78 in the same period. Yet prior to the latest earnings, analysts had been forecasting revenues of CN¥4.30b and earnings per share (EPS) of CN¥0.68 in 2019. Although analysts have lowered their sales forecasts, they've also made a decent improvement in their earnings per share estimates, which implies there's been something of an uptick in sentiment following the latest results.
There's been no real change to the average price target of CN¥29.56, with the lower revenue and higher earnings forecasts not expected to meaningfully impact the company's valuation over a longer timeframe. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company's valuation. There are some variant perceptions on Cheetah Mobile, with the most bullish analyst valuing it at CN¥46.24 and the most bearish at CN¥20.48 per share. This is a fairly broad spread of estimates, suggesting that analysts are forecasting a wide range of possible outcomes for the business.
Another way to assess these estimates is by comparing them to past performance, and seeing whether analysts are more or less bullish relative to other companies in the market. We would highlight that sales are expected to reverse, with the forecast 3.5% revenue decline a notable change from historical growth of 15% over the last five years. Compare this with our data, which suggests that other companies in the same market are, in aggregate, expected to see their revenue grow 12% next year. It's pretty clear that Cheetah Mobile's revenues are expected to perform substantially worse than the wider market.
The Bottom Line
The biggest takeaway for us from these new estimates is that the consensus upgraded its earnings per share estimates, showing a clear improvement in sentiment around Cheetah Mobile's earnings potential next year. Unfortunately, analysts also downgraded their revenue estimates, and our data indicates revenues are expected to perform worse than the wider market. Even so, earnings per share are more important to the intrinsic value of the business. Even so, earnings are more important to the intrinsic value of the business. The consensus price target held steady at CN¥29.56, with the latest estimates not enough to have an impact on analysts' estimated valuations.
With that said, the long-term trajectory of the company's earnings is a lot more important than next year. We have forecasts for Cheetah Mobile going out to 2021, and you can see them free on our platform here.
We also provide an overview of the Cheetah Mobile Board and CEO remuneration and length of tenure at the company, and whether insiders have been buying the stock, here.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.