It's been a sad week for Goodbaby International Holdings Limited (HKG:1086), who've watched their investment drop 11% to HK$0.87 in the week since the company reported its annual result. It was an okay result overall, with revenues coming in at HK$8.8b, roughly what the analysts had been expecting. 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. With this in mind, we've gathered the latest statutory forecasts to see what the analysts are expecting for next year.
Taking into account the latest results, Goodbaby International Holdings's five analysts currently expect revenues in 2020 to be HK$8.82b, approximately in line with the last 12 months. Per-share earnings are expected to increase 6.7% to HK$0.13. Before this earnings report, the analysts had been forecasting revenues of HK$9.48b and earnings per share (EPS) of HK$0.16 in 2020. From this we can that sentiment has definitely become more bearish after the latest results, leading to lower revenue forecasts and a large cut to earnings per share estimates.
The consensus price target fell 36% to HK$1.21, with the weaker earnings outlook clearly leading valuation estimates. 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 Goodbaby International Holdings analyst has a price target of HK$1.80 per share, while the most pessimistic values it at HK$0.95. 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. It's pretty clear that there is an expectation that Goodbaby International Holdings's revenue growth will slow down substantially, with revenues next year expected to grow 0.5%, compared to a historical growth rate of 7.1% over the past five years. By way of comparison, the other companies in this industry with analyst coverage are forecast to grow their revenue at 6.2% per year. So it's pretty clear that, while revenue growth is expected to slow down, the wider industry is also expected to grow faster than Goodbaby International Holdings.
The Bottom Line
The biggest concern is that the analysts reduced their earnings per share estimates, suggesting business headwinds could lay ahead for Goodbaby International Holdings. Unfortunately, they also downgraded their revenue estimates, and our data indicates revenues are expected to perform worse than the wider industry. Even so, earnings per share are more important to the intrinsic value of the business. Furthermore, the analysts also cut their price targets, suggesting that the latest news has led to greater pessimism about the intrinsic value of the business.
Keeping that in mind, we still think that the longer term trajectory of the business is much more important for investors to consider. We have forecasts for Goodbaby International Holdings going out to 2022, and you can see them free on our platform here.
However, before you get too enthused, we've discovered 2 warning signs for Goodbaby International Holdings (1 makes us a bit uncomfortable!) that you should be aware of.
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