It’s been a pretty great week for Pacific Smiles Group Limited (ASX:PSQ) shareholders, with its shares surging 11% to AU$2.05 in the week since its latest half-yearly results. The result was positive overall – although revenues of AU$68m were in line with what analysts predicted, Pacific Smiles Group surprised by delivering a statutory profit of AU$0.057 per share, modestly greater than expected. Analysts typically update their forecasts at each earnings report, and we can judge from their estimates whether their view of the company has changed or if there are any new concerns to be aware of. Readers will be glad to know we’ve aggregated the latest statutory forecasts to see whether analysts have changed their mind on Pacific Smiles Group after the latest results.
Taking into account the latest results, the latest consensus from Pacific Smiles Group’s three analysts is for revenues of AU$138.0m in 2020, which would reflect a reasonable 6.1% improvement in sales compared to the last 12 months. Statutory earnings per share are expected to accumulate 5.4% to AU$0.059. Yet prior to the latest earnings, analysts had been forecasting revenues of AU$137.9m and earnings per share (EPS) of AU$0.062 in 2020. So it looks like there’s been a small decline in overall sentiment after the recent results – there’s been no major change to revenue estimates, but analysts did make a minor downgrade to their earnings per share forecasts.
Despite cutting their earnings forecasts, analysts have lifted their price target 7.2% to AU$2.04, suggesting that these impacts are not expected to weigh on the stock’s value in the long term. 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 Pacific Smiles Group analyst has a price target of AU$2.15 per share, while the most pessimistic values it at AU$1.85. Still, with such a tight range of estimates, it suggests analysts have a pretty good idea of what they think the company is worth.
Zooming out to look at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up both against past performance, and against industry growth estimates. We would highlight that Pacific Smiles Group’s revenue growth is expected to slow, with forecast 6.1% increase next year well below the historical 12%p.a. growth over the last five years. Juxtapose this against the other companies in the market with analyst coverage, which are forecast to grow their revenues (in aggregate) 4.8% next year. So it’s pretty clear that, while Pacific Smiles Group’s revenue growth is expected to slow, it’s still expected to grow faster than the market itself.
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. Fortunately, analysts also reconfirmed their revenue estimates, suggesting sales are tracking in line with expectations – and our data does suggest that Pacific Smiles Group’s revenues are expected to grow faster than the wider market. Analysts also upgraded their price target, suggesting that analysts believe the intrinsic value of the business is likely to improve over time.
Even so, the longer term trajectory of the business is much more important for the value creation of shareholders. At Simply Wall St, we have a full range of analyst estimates for Pacific Smiles Group going out to 2022, and you can see them free on our platform here..
You can also see whether Pacific Smiles Group is carrying too much debt, and whether its balance sheet is healthy, for free on our platform here.
If you spot an error that warrants correction, please contact the editor at email@example.com. 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.
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