It’s shaping up to be a tough period for 3SBio Inc. (HKG:1530), which a week ago released some disappointing full-year results that could have a notable impact on how the market views the stock. It wasn’t a great result overall – while revenue fell marginally short of analyst estimates at CN¥5.3b, statutory earnings missed forecasts by 19%, coming in at just CN¥0.38 per share. This is an important time for investors, as they can track a company’s performance in its report, look at what experts are forecasting for next year, and see if there has been any change to expectations for the business. So we collected the latest post-earnings statutory consensus estimates to see what could be in store for next year.
Following the latest results, 3SBio’s 14 analysts are now forecasting revenues of CN¥5.95b in 2020. This would be a notable 12% improvement in sales compared to the last 12 months. Per-share earnings are expected to surge 37% to CN¥0.53. Before this earnings report, the analysts had been forecasting revenues of CN¥6.55b and earnings per share (EPS) of CN¥0.64 in 2020. The analysts seem less optimistic after the recent results, reducing their sales forecasts and making a substantial drop in earnings per share numbers.
It’ll come as no surprise then, to learn thatthe analysts have cut their price target 12% to CN¥11.59. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. The most optimistic 3SBio analyst has a price target of CN¥18.43 per share, while the most pessimistic values it at CN¥8.06. This is a fairly broad spread of estimates, suggesting that analysts are forecasting a wide range of possible outcomes for the business.
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. It’s pretty clear that there is an expectation that 3SBio’s revenue growth will slow down substantially, with revenues next year expected to grow 12%, compared to a historical growth rate of 28% over the past five years. Compare this against other companies (with analyst forecasts) in the industry, which are in aggregate expected to see revenue growth of 35% next 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 3SBio.
The Bottom Line
The biggest concern is that the analysts reduced their earnings per share estimates, suggesting business headwinds could lay ahead for 3SBio. 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. The consensus price target fell measurably, with the analysts seemingly not reassured by the latest results, leading to a lower estimate of 3SBio’s future valuation.
With that said, the long-term trajectory of the company’s earnings is a lot more important than next year. We have forecasts for 3SBio going out to 2024, and you can see them free on our platform here.
It is also worth noting that we have found 3 warning signs for 3SBio that you need to take into consideration.
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