Market forces rained on the parade of Hilong Holding Limited (HKG:1623) shareholders today, when the covering analyst downgraded their 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.
Following the downgrade, the latest consensus from Hilong Holding's single analyst is for revenues of CN¥3.0b in 2021, which would reflect a decent 15% improvement in sales compared to the last 12 months. Prior to the latest estimates, the analyst was forecasting revenues of CN¥3.4b in 2021. It looks like forecasts have become a fair bit less optimistic on Hilong Holding, given the measurable cut to revenue estimates.
There was no particular change to the consensus price target of CN¥0.20, with Hilong Holding's latest outlook seemingly not enough to result in a change of 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. There are some variant perceptions on Hilong Holding, with the most bullish analyst valuing it at CN¥0.26 and the most bearish at CN¥0.20 per share. There are definitely some different views on the stock, but the range of estimates is not wide enough as to imply that the situation is unforecastable, in our view.
One way to get more context on these forecasts is to look at how they compare to both past performance, and how other companies in the same industry are performing. It's clear from the latest estimates that Hilong Holding's rate of growth is expected to accelerate meaningfully, with the forecast 15% annualised revenue growth to the end of 2021 noticeably faster than its historical growth of 10% p.a. over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to grow their revenue at 11% per year. Factoring in the forecast acceleration in revenue, it's pretty clear that Hilong Holding is expected to grow much faster than its industry.
The Bottom Line
The most important thing to take away is that the analyst cut their revenue estimates for this year. The analyst also expects revenues to grow faster than the wider market. Often, one downgrade can set off a daisy-chain of cuts, especially if an industry is in decline. So we wouldn't be surprised if the market became a lot more cautious on Hilong Holding after today.
Want to learn more? We have forecasts for Hilong Holding from one covering analyst, and you can see them free on our platform here.
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