Things Look Grim For SJM Holdings Limited (HKG:880) After Today's Downgrade

Market forces rained on the parade of SJM Holdings Limited (HKG:880) shareholders today, when the analysts downgraded their forecasts for this year. Revenue and earnings per share (EPS) forecasts were both revised downwards, with analysts seeing grey clouds on the horizon.

Following the downgrade, the most recent consensus for SJM Holdings from its 15 analysts is for revenues of HK$17b in 2022 which, if met, would be a huge 98% increase on its sales over the past 12 months. Losses are forecast to hold steady at around HK$0.55. Yet prior to the latest estimates, the analysts had been forecasting revenues of HK$21b and losses of HK$0.24 per share in 2022. So there's been quite a change-up of views after the recent consensus updates, with the analysts making a serious cut to their revenue forecasts while also expecting losses per share to increase.

View our latest analysis for SJM Holdings

The consensus price target was broadly unchanged at HK$6.75, perhaps implicitly signalling that the weaker earnings outlook is not expected to have a long-term impact on the valuation. That's not the only conclusion we can draw from this data however, as some investors also like to consider the spread in estimates when evaluating analyst price targets. Currently, the most bullish analyst values SJM Holdings at HK$10.00 per share, while the most bearish prices it at HK$5.00. 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.

These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the SJM Holdings' past performance and to peers in the same industry. One thing stands out from these estimates, which is that SJM Holdings is forecast to grow faster in the future than it has in the past, with revenues expected to display 98% annualised growth until the end of 2022. If achieved, this would be a much better result than the 21% annual decline over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in the industry are forecast to see their revenue grow 28% per year. So it looks like SJM Holdings is expected to grow faster than its competitors, at least for a while.

The Bottom Line

The most important thing to note from this downgrade is that the consensus increased its forecast losses this year, suggesting all may not be well at SJM Holdings. Unfortunately, analysts also downgraded their revenue estimates, although our data indicates revenues are expected to perform better than the wider market. We're also surprised to see that the price target went unchanged. Still, deteriorating business conditions (assuming accurate forecasts!) can be a leading indicator for the stock price, so we wouldn't blame investors for being more cautious on SJM Holdings after the downgrade.

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 SJM Holdings going out to 2024, 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.