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SOHO China Limited (HKG:410): Are Analysts’ Earnings Forecast Signalling Trouble Ahead?

Brandon Murphy

In December 2017, SOHO China Limited (HKG:410) released its most recent earnings announcement, which showed that the business benefited from a substantial tailwind, more than doubling its earnings from the prior year. Investors may find it useful to understand how market analysts predict SOHO China’s earnings growth trajectory over the next few years and whether the future looks even brighter than the past. I will be looking at earnings excluding extraordinary items to exclude one-off activities to get a better understanding of the underlying drivers of earnings. View out our latest analysis for SOHO China

Analysts’ expectations for the upcoming year seems pessimistic, with earnings reducing by a double-digit -89.29%. Beyond this, earnings are predicted to continue to be below today’s level, with a decline of -86.10% in 2020, eventually reaching HK$658.03m in 2021.

SEHK:410 Future Profit June 25th 18

While it’s helpful to be aware of the growth rate year by year relative to today’s level, it may be more insightful to evaluate the rate at which the business is rising or falling every year, on average. The pro of this technique is that it removes the impact of near term flucuations and accounts for the overarching direction of SOHO China’s earnings trajectory over time, which may be more relevant for long term investors. To calculate this rate, I’ve inserted a line of best fit through analyst consensus of forecasted earnings. The slope of this line is the rate of earnings growth, which in this case is -37.62%. This means that, we can anticipate SOHO China will chip away at a rate of -37.62% every year for the next couple of years.

Next Steps:

For SOHO China, I’ve compiled three essential aspects you should further research:

  1. Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
  2. Valuation: What is 410 worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether 410 is currently mispriced by the market.
  3. Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of 410? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!

To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.