Market forces rained on the parade of Impro Precision Industries Limited (HKG:1286) shareholders today, when the covering analyst downgraded their forecasts for this year. Revenue estimates were cut sharply as the analyst signalled a weaker outlook – perhaps a sign that investors should temper their expectations as well. At HK$2.57, shares are up 7.5% in the past 7 days. We’d be curious to see if the downgrade is enough to reverse investor sentiment on the business.
Following the latest downgrade, the current consensus, from the solo analyst covering Impro Precision Industries, is for revenues of HK$2.7b in 2020, which would reflect a sizeable 26% reduction in Impro Precision Industries’ sales over the past 12 months. Before the latest update, the analyst was foreseeing HK$3.4b of revenue in 2020. It looks like forecasts have become a fair bit less optimistic on Impro Precision Industries, given the sizeable cut to revenue estimates.
The consensus price target fell 21% to HK$2.20, with the analyst clearly less optimistic about Impro Precision Industries’ valuation following this update.
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. We would highlight that sales are expected to reverse, with the forecast 26% revenue decline a notable change from historical growth of 12% over the last three years. Compare this with our data, which suggests that other companies in the same industry are, in aggregate, expected to see their revenue grow 7.1% next year. So although its revenues are forecast to shrink, this cloud does not come with a silver lining – Impro Precision Industries is expected to lag the wider industry.
The Bottom Line
The most important thing to take away is that the analyst cut their revenue estimates for this year. They’re also anticipating slower revenue growth than the wider market. Furthermore, there was a cut to the price target, suggesting that the latest news has led to more pessimism about the intrinsic value of the business. Often, one downgrade can set off a daisy-chain of cuts, especially if an industry is in decline. So we wouldn’t be surprised if the market became a lot more cautious on Impro Precision Industries after today.
Looking to learn more? We have forecasts for Impro Precision Industries from one covering analyst, 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.
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