It’s been a mediocre week for G5 Entertainment AB (publ) (STO:G5EN) shareholders, with the stock dropping 20% to kr97.40 in the week since its latest annual results. Revenues were in line with forecasts, at kr1.2b, although statutory earnings per share came in 20% below what analysts expected, at kr4.97 per share. Following the result, analysts have updated their earnings model, and it would be good to know whether they think there’s been a strong change in the company’s prospects, or if it’s business as usual. Readers will be glad to know we’ve aggregated the latest statutory forecasts to see whether analysts have changed their mind on G5 Entertainment after the latest results.
Taking into account the latest results, the most recent consensus for G5 Entertainment from three analysts is for revenues of kr1.39b in 2020, which is a decent 13% increase on its sales over the past 12 months. Statutory earnings per share are expected to surge 65% to kr8.25. In the lead-up to this report, analysts had been modelling revenues of kr1.41b and earnings per share (EPS) of kr9.84 in 2020. Analysts seem to have become more bearish following the latest results. While there were no changes to revenue forecasts, there was a real cut to EPS estimates.
The consensus price target held steady at kr133, with analysts seemingly voting that their lower forecast earnings are not expected to lead to a lower stock price in the foreseeable future. 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 G5 Entertainment, with the most bullish analyst valuing it at kr160 and the most bearish at kr105 per share. This shows there is still quite a bit of 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.
It can also be useful to step back and take a broader view of how analyst forecasts compare to G5 Entertainment’s performance in recent years. It’s pretty clear that analysts expect G5 Entertainment’s revenue growth will slow down substantially, with revenues next year expected to grow 13%, compared to a historical growth rate of 33% over the past five years. Juxtapose this against the other companies in the market with analyst coverage, which are forecast to grow their revenues (in aggregate) 11% next year. Factoring in the forecast slowdown in growth, it looks like analysts are expecting G5 Entertainment to grow at about the same rate as the wider market.
The Bottom Line
The most important thing to take away is that analysts downgraded their earnings per share estimates, showing that there has been a clear decline in sentiment following these results. They also reconfirmed their revenue estimates, with the company predicted to grow at about the same rate as the wider market. The consensus price target held steady at kr133, with the latest estimates not enough to have an impact on analysts’ estimated valuations.
With that in mind, we wouldn’t be too quick to come to a conclusion on G5 Entertainment. Long-term earnings power is much more important than next year’s profits. We have forecasts for G5 Entertainment going out to 2022, and you can see them free on our platform here.
Another thing to consider is whether management and directors have been buying or selling stock recently. We provide an overview of all open market stock trades for the last twelve months on our platform, here.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.