Shareholders in China Molybdenum Co., Ltd. (HKG:3993) may be thrilled to learn that the analysts have just delivered a major upgrade to their near-term forecasts. The consensus estimated revenue numbers rose, with their view now clearly much more bullish on the company's business prospects.
Following the latest upgrade, the 13 analysts covering China Molybdenum provided consensus estimates of CN¥62b revenue in 2020, which would reflect a not inconsiderable 9.2% decline on its sales over the past 12 months. Statutory earnings per share are expected to be CN¥0.084, roughly flat on the last 12 months. Before this latest update, the analysts had been forecasting revenues of CN¥44b and earnings per share (EPS) of CN¥0.084 in 2020. There's clearly been a surge in bullishness around the company's sales pipeline, even if there's no real change in earnings per share forecasts.
Even though revenue forecasts increased, there was no change to the consensus price target of CN¥2.71, suggesting the analysts are focused on earnings as the driver of value creation. There's another way to think about price targets though, and that's to look at the range of price targets put forward by analysts, because a wide range of estimates could suggest a diverse view on possible outcomes for the business. There are some variant perceptions on China Molybdenum, with the most bullish analyst valuing it at CN¥3.58 and the most bearish at CN¥2.01 per share. There are definitely some different views on the stock, but the range of estimates is not wide enough as to imply that the situation is unforecastable, in our view.
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. We would highlight that sales are expected to reverse, with the forecast 9.2% revenue decline a notable change from historical growth of 47% over the last five years. Compare this with our data, which suggests that other companies in the same industry are, in aggregate, expected to see their revenue grow 4.0% next year. It's pretty clear that China Molybdenum's revenues are expected to perform substantially worse than the wider industry.
The Bottom Line
The most obvious conclusion from this consensus update is that there's been no major change in the business' prospects in recent times, with analysts holding earnings per share steady, in line with previous estimates. Fortunately, they also upgraded their revenue estimates, and are forecasting revenues to grow slower than the wider market. Seeing the dramatic upgrade to this year's forecasts, it might be time to take another look at China Molybdenum.
These earnings upgrades look like a sterling endorsement, but before diving in - you should know that we've spotted 4 potential risks with China Molybdenum, including its declining profit margins. You can learn more, and discover the 3 other risks we've identified, for 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 upgrading their estimates. So you may also wish to search this free list of stocks that insiders are buying.
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