GEM Co., Ltd. (SZSE:002340) Just Reported First-Quarter Earnings: Have Analysts Changed Their Mind On The Stock?

Shareholders of GEM Co., Ltd. (SZSE:002340) will be pleased this week, given that the stock price is up 19% to CN¥6.96 following its latest first-quarter results. Results were roughly in line with estimates, with revenues of CN¥8.4b and statutory earnings per share of CN¥0.18. 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. We've gathered the most recent statutory forecasts to see whether the analysts have changed their earnings models, following these results.

See our latest analysis for GEM

Taking into account the latest results, GEM's nine analysts currently expect revenues in 2024 to be CN¥32.7b, approximately in line with the last 12 months. Statutory earnings per share are expected to dip 6.2% to CN¥0.22 in the same period. Yet prior to the latest earnings, the analysts had been anticipated revenues of CN¥34.3b and earnings per share (EPS) of CN¥0.34 in 2024. From this we can that sentiment has definitely become more bearish after the latest results, leading to lower revenue forecasts and a large cut to earnings per share estimates.

The analysts made no major changes to their price target of CN¥5.94, suggesting the downgrades are not expected to have a long-term impact on GEM's valuation. There's another way to think about price targets though, and that's to look at the range of price targets put forward by analysts, because a wide range of estimates could suggest a diverse view on possible outcomes for the business. The most optimistic GEM analyst has a price target of CN¥8.50 per share, while the most pessimistic values it at CN¥4.40. Note the wide gap in analyst price targets? This implies to us that there is a fairly broad range of possible scenarios for the underlying business.

Another way we can view these estimates is in the context of the bigger picture, such as how the forecasts stack up against past performance, and whether forecasts are more or less bullish relative to other companies in the industry. These estimates imply that revenue is expected to slow, with a forecast annualised decline of 0.3% by the end of 2024. This indicates a significant reduction from annual growth of 22% 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 10% per year. It's pretty clear that GEM's revenues are expected to perform substantially worse than the wider industry.

The Bottom Line

The biggest concern is that the analysts reduced their earnings per share estimates, suggesting business headwinds could lay ahead for GEM. Unfortunately, they also downgraded their revenue estimates, and our data indicates underperformance compared to the wider industry. Even so, earnings per share are more important to the intrinsic value of the business. There was no real change to the consensus price target, suggesting that the intrinsic value of the business has not undergone any major changes with the latest estimates.

With that said, the long-term trajectory of the company's earnings is a lot more important than next year. We have estimates - from multiple GEM analysts - going out to 2026, and you can see them free on our platform here.

And what about risks? Every company has them, and we've spotted 3 warning signs for GEM (of which 1 shouldn't be ignored!) you should know about.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.