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Time To Worry? Analysts Are Downgrading Their Yatsen Holding Limited (NYSE:YSG) Outlook

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The analysts covering Yatsen Holding Limited (NYSE:YSG) delivered a dose of negativity to shareholders today, by making a substantial revision to their statutory forecasts for this year. Both revenue and earnings per share (EPS) forecasts went under the knife, suggesting the analysts have soured majorly on the business. Investors however, have been notably more optimistic about Yatsen Holding recently, with the stock price up an extraordinary 36% to US$0.83 in the past week. It will be interesting to see if the downgrade has an impact on buying demand for the company's shares.

Following the latest downgrade, the five analysts covering Yatsen Holding provided consensus estimates of CN¥4.9b revenue in 2022, which would reflect a not inconsiderable 16% decline on its sales over the past 12 months. Losses are predicted to fall substantially, shrinking 37% to CN¥1.54. Yet before this consensus update, the analysts had been forecasting revenues of CN¥5.6b and losses of CN¥0.95 per share in 2022. So there's been quite a change-up of views after the recent consensus updates, with the analysts making a serious cut to their revenue forecasts while also expecting losses per share to increase.

View our latest analysis for Yatsen Holding

earnings-and-revenue-growth
earnings-and-revenue-growth

The consensus price target fell 34% to CN¥10.77, implicitly signalling that lower earnings per share are a leading indicator for Yatsen Holding's valuation. 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 Yatsen Holding, with the most bullish analyst valuing it at CN¥3.51 and the most bearish at CN¥0.70 per share. With such a narrow range of valuations, analysts apparently share similar views on what they think the business is worth.

Taking a look at the bigger picture now, one of the ways we can understand these forecasts is to see how they compare to both past performance and industry growth estimates. We would highlight that sales are expected to reverse, with a forecast 16% annualised revenue decline to the end of 2022. That is a notable change from historical growth of 43% over the last three years. By contrast, our data suggests that other companies (with analyst coverage) in the same industry are forecast to see their revenue grow 9.3% annually for the foreseeable future. It's pretty clear that Yatsen Holding's revenues are expected to perform substantially worse than the wider industry.

The Bottom Line

The most important thing to note from this downgrade is that the consensus increased its forecast losses this year, suggesting all may not be well at Yatsen Holding. Unfortunately analysts also downgraded their revenue estimates, and industry data suggests that Yatsen Holding's revenues are expected to grow slower than the wider market. Given the scope of the downgrades, it would not be a surprise to see the market become more wary of the business.

Even so, the longer term trajectory of the business is much more important for the value creation of shareholders. We have estimates - from multiple Yatsen Holding analysts - going out to 2024, and you can see them 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 downgrading their estimates. So you may also wish to search this free list of stocks that insiders are buying.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.