Newsflash: Stella International Holdings Limited (HKG:1836) Analysts Have Been Trimming Their Revenue Forecasts

One thing we could say about the analysts on Stella International Holdings Limited (HKG:1836) - they aren't optimistic, having just made a major negative revision to their near-term (statutory) forecasts for the organization. There was a fairly draconian cut to their revenue estimates, perhaps an implicit admission that previous forecasts were much too optimistic. At HK$7.88, shares are up 9.3% in the past 7 days. Investors could be forgiven for changing their mind on the business following the downgrade; but it's not clear if the revised forecasts will lead to selling activity.

Following the latest downgrade, the seven analysts covering Stella International Holdings provided consensus estimates of US$1.5b revenue in 2023, which would reflect a chunky 10% decline on its sales over the past 12 months. Statutory earnings per share are presumed to rise 2.3% to US$0.15. Prior to this update, the analysts had been forecasting revenues of US$1.7b and earnings per share (EPS) of US$0.15 in 2023. So there's been a clear change in analyst sentiment in the recent update, with the analysts making a measurable cut to revenues and reconfirming their earnings per share estimates.

View our latest analysis for Stella International Holdings

The consensus price target was reduced 8.3% to US$1.48, with the lower revenue forecasts indicating negative sentiment towards Stella International Holdings, even though earnings forecasts were unchanged. 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 Stella International Holdings analyst has a price target of US$12.59 per share, while the most pessimistic values it at US$10.99. So we wouldn't be assigning too much credibility to analyst price targets in this case, because there are clearly some widely differing views on what kind of performance this business can generate. With this in mind, we wouldn't rely too heavily on the consensus price target, as it is just an average and analysts clearly have some deeply divergent views on the business.

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. One more thing stood out to us about these estimates, and it's the idea that Stella International Holdings' decline is expected to accelerate, with revenues forecast to fall at an annualised rate of 10% to the end of 2023. This tops off a historical decline of 0.6% a year over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to see their revenue grow 12% per year. So while a broad number of companies are forecast to grow, unfortunately Stella International Holdings is expected to see its sales affected worse than other companies in the industry.

The Bottom Line

The most obvious conclusion from this consensus update is that there's been no major change in the business' prospects in recent times, with analysts holding earnings per share steady, in line with previous estimates. Unfortunately analysts also downgraded their revenue estimates, and industry data suggests that Stella International Holdings' revenues are expected to grow slower than the wider market. The consensus price target fell measurably, with analysts seemingly not reassured by recent business developments, leading to a lower estimate of Stella International Holdings' future valuation. Given the stark change in sentiment, we'd understand if investors became more cautious on Stella International Holdings after today.

Even so, the longer term trajectory of the business is much more important for the value creation of shareholders. We have estimates - from multiple Stella International Holdings analysts - going out to 2025, 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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