It's been a good week for GDS Holdings Limited (NASDAQ:GDS) shareholders, because the company has just released its latest third-quarter results, and the shares gained 5.4% to US$44.35. It looks like the results were pretty good overall. While revenues of CN¥1.1b were in line with analyst predictions, losses were much smaller than expected, with GDS Holdings losing CN¥0.87 per share. Earnings are an important time for investors, as they can track a company's performance, look at what top analysts are forecasting for next year, and see if there's been a change in sentiment towards the company. Readers will be glad to know we've aggregated the latest forecasts to see whether analysts have changed their mind on GDS Holdings after the latest results.
Taking into account the latest results, the most recent consensus for GDS Holdings from eleven analysts is for revenues of CN¥5.83b in 2020, which is a substantial 54% increase on its sales over the past 12 months. Earnings are expected to improve, with GDS Holdings forecast to report a profit of CN¥0.19 per share. In the lead-up to this report, analysts had been modelling revenues of CN¥5.82b and earnings per share (EPS) of CN¥0.29 in 2020. So there's definitely been a decline in analyst sentiment after the latest results, noting the pretty serious reduction to new EPS forecasts.
It might be a surprise to learn that the consensus price target was broadly unchanged at CN¥364, with analysts clearly implying that the forecast decline in earnings is not expected to have much of an impact on valuation. 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. The most optimistic GDS Holdings analyst has a price target of CN¥456 per share, while the most pessimistic values it at CN¥190. This is a fairly broad spread of estimates, suggesting that analysts are forecasting a wide range of possible outcomes for the business.
It can also be useful to step back and take a broader view of how analyst forecasts compare to GDS Holdings's performance in recent years. It's clear from the latest estimates that GDS Holdings's rate of growth is expected to accelerate meaningfully, with forecast 54% revenue growth noticeably faster than its historical growth of 41%p.a. over the past five years. Compare this with other companies in the same market, which are forecast to grow their revenue 10% next year. It seems obvious that, while the growth outlook is brighter than the recent past, analysts also expect GDS Holdings to grow faster than the wider market.
The Bottom Line
The biggest highlight of the new consensus is that analysts have reduced their earnings per share estimates, suggesting business headwinds could lay ahead for GDS Holdings. Happily, there were no major changes to revenue forecasts, with analysts still expecting the business to grow faster than the wider market. The consensus price target held steady at CN¥364, with the latest estimates not enough to have an impact on analysts' estimated valuations.
Still, the long-term prospects of the business are much more relevant than next year's earnings. We have forecasts for GDS Holdings going out to 2023, and you can see them free on our platform here.
You can also see whether GDS Holdings is carrying too much debt, and whether its balance sheet is healthy, for free on our platform here.
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