The latest analyst coverage could presage a bad day for China Lilang Limited (HKG:1234), with the analysts making across-the-board cuts to their statutory estimates that might leave shareholders a little shell-shocked. Both revenue and earnings per share (EPS) forecasts went under the knife, suggesting the analysts have soured majorly on the business.
Following this downgrade, China Lilang’s five analysts are forecasting 2020 revenues to be CN¥3.6b, approximately in line with the last 12 months. Statutory earnings per share are supposed to decrease 9.4% to CN¥0.61 in the same period. Previously, the analysts had been modelling revenues of CN¥4.2b and earnings per share (EPS) of CN¥0.81 in 2020. Indeed, we can see that the analysts are a lot more bearish about China Lilang’s prospects, administering a substantial drop in revenue estimates and slashing their EPS estimates to boot.
The consensus price target fell 18% to CN¥6.49, with the weaker earnings outlook clearly leading analyst valuation estimates. That’s not the only conclusion we can draw from this data however, as some investors also like to consider the spread in estimates when evaluating analyst price targets. There are some variant perceptions on China Lilang, with the most bullish analyst valuing it at CN¥8.18 and the most bearish at CN¥4.97 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. These estimates imply that sales are expected to slow, with a forecast revenue decline of 1.7%, a significant reduction from annual growth of 7.2% 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 14% next year. It’s pretty clear that China Lilang’s revenues are expected to perform substantially worse than the wider industry.
The Bottom Line
The most important thing to take away is that analysts cut their earnings per share estimates, expecting a clear decline in business conditions. Regrettably, they also downgraded their revenue estimates, and the latest forecasts imply the business will grow sales 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.
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 China Lilang going out to 2022, 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.
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