Need To Know: The Consensus Just Cut Its NagaCorp Ltd. (HKG:3918) Estimates For 2021

The analysts covering NagaCorp Ltd. (HKG:3918) delivered a dose of negativity to shareholders today, by making a substantial revision to their statutory forecasts for this year. There was a fairly draconian cut to their revenue estimates, perhaps an implicit admission that previous forecasts were much too optimistic.

After the downgrade, the consensus from NagaCorp's six analysts is for revenues of US$309m in 2021, which would reflect a concerning 51% decline in sales compared to the last year of performance. After this downgrade, the company is anticipated to report a loss of US$0.029 in 2021, a sharp decline from a profit over the last year. Yet prior to the latest estimates, the analysts had been forecasting revenues of US$373m and losses of US$0.029 per share in 2021. So there's definitely been a change in sentiment in this update, with the analysts administering a substantial haircut to this year's revenue estimates, while at the same time holding losses per share steady.

See our latest analysis for NagaCorp

The consensus price target was broadly unchanged at US$1.20, implying that the business is performing roughly in line with expectations, despite a downwards adjustment to forecast sales this year. 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. Currently, the most bullish analyst values NagaCorp at US$13.43 per share, while the most bearish prices it at US$6.69. As you can see the range of estimates is wide, with the lowest valuation coming in at less than half the most bullish estimate, suggesting there are some strongly diverging views on how think this business will perform. As a result it might not be possible to derive much meaning from the consensus price target, which is after all just an average of this wide range of estimates.

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 sales are expected to slow, with a forecast annualised revenue decline of 76% by the end of 2021. This indicates a significant reduction from annual growth of 11% 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 29% per year. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - NagaCorp is expected to lag the wider industry.

The Bottom Line

Regrettably, they also downgraded their revenue estimates, and the latest forecasts imply the business will grow sales slower than the wider market. Overall, given the drastic downgrade to this year's forecasts, we'd be feeling a little more wary of NagaCorp going forwards.

Still, the long-term prospects of the business are much more relevant than next year's earnings. At Simply Wall St, we have a full range of analyst estimates for NagaCorp going out to 2023, 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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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.