Market forces rained on the parade of Shanghai Industrial Holdings Limited (HKG:363) shareholders today, when the analysts downgraded their forecasts for this year. Both revenue and earnings per share (EPS) estimates were cut sharply as the analysts factored in the latest outlook for the business, concluding that they were too optimistic previously.
Following the latest downgrade, the four analysts covering Shanghai Industrial Holdings provided consensus estimates of HK$28b revenue in 2020, which would reflect an uncomfortable 13% decline on its sales over the past 12 months. Statutory earnings per share are supposed to dive 27% to HK$2.25 in the same period. Before this latest update, the analysts had been forecasting revenues of HK$34b and earnings per share (EPS) of HK$3.25 in 2020. Indeed, we can see that the analysts are a lot more bearish about Shanghai Industrial Holdings' prospects, administering a measurable cut to revenue estimates and slashing their EPS estimates to boot.
The consensus price target fell 15% to HK$17.12, with the weaker earnings outlook clearly leading analyst 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. There are some variant perceptions on Shanghai Industrial Holdings, with the most bullish analyst valuing it at HK$21.10 and the most bearish at HK$12.60 per share. This shows there is still some diversity in estimates, but analysts don't appear to be totally split on the stock as though it might be a success or failure situation.
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. These estimates imply that sales are expected to slow, with a forecast revenue decline of 13%, a significant reduction from annual growth of 12% 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 6.7% next year. It's pretty clear that Shanghai Industrial Holdings' revenues are expected to perform substantially worse than the wider industry.
The Bottom Line
The biggest issue in the new estimates is that analysts have reduced their earnings per share estimates, suggesting business headwinds lay ahead for Shanghai Industrial Holdings. Regrettably, they also downgraded their revenue estimates, and the latest forecasts imply the business will grow sales slower than the wider market. With a serious cut to this year's expectations and a falling price target, we wouldn't be surprised if investors were becoming wary of Shanghai Industrial Holdings.
With that said, the long-term trajectory of the company's earnings is a lot more important than next year. At Simply Wall St, we have a full range of analyst estimates for Shanghai Industrial Holdings going out to 2021, and you can see them free on our platform here.
Another way to search for interesting companies that could be reaching an inflection point is to track whether management are buying or selling, with our free list of growing companies that insiders are buying.
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.
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