Nongfu Spring Co., Ltd. (HKG:9633) shareholders are probably feeling a little disappointed, since its shares fell 9.1% to HK$40.00 in the week after its latest yearly results. Results look mixed - while revenue fell marginally short of analyst estimates at CN¥23b, statutory earnings beat expectations 2.8%, with Nongfu Spring reporting profits of CN¥0.48 per share. 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.
Taking into account the latest results, the current consensus from Nongfu Spring's 14 analysts is for revenues of CN¥27.0b in 2021, which would reflect a meaningful 18% increase on its sales over the past 12 months. Statutory earnings per share are predicted to ascend 19% to CN¥0.57. Yet prior to the latest earnings, the analysts had been anticipated revenues of CN¥28.4b and earnings per share (EPS) of CN¥0.58 in 2021. So it looks like the analysts have become a bit less optimistic after the latest results announcement, with revenues expected to fall even as the company is supposed to maintain EPS.
The consensus has reconfirmed its price target of CN¥42.83, showing that the analysts don't expect weaker sales expectations next year to have a material impact on Nongfu Spring's market value. 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. The most optimistic Nongfu Spring analyst has a price target of CN¥70.23 per share, while the most pessimistic values it at CN¥26.81. 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 analysts think this business will perform. With this in mind, we wouldn't rely too heavily the consensus price target, as it is just an average and analysts clearly have some deeply divergent views on the 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. The analysts are definitely expecting Nongfu Spring's growth to accelerate, with the forecast 18% annualised growth to the end of 2021 ranking favourably alongside historical growth of 9.3% per annum over the past three years. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to grow their revenue at 13% per year. It seems obvious that, while the growth outlook is brighter than the recent past, the analysts also expect Nongfu Spring to grow faster than the wider industry.
The Bottom Line
The most important thing to take away is that there's been no major change in sentiment, with the analysts reconfirming that the business is performing in line with their previous earnings per share estimates. Regrettably, they also downgraded their revenue estimates, but the latest forecasts still imply the business will grow faster than the wider industry. Still, earnings are more important to the intrinsic value of the business. The consensus price target held steady at CN¥42.83, with the latest estimates not enough to have an impact on their price targets.
Keeping that in mind, we still think that the longer term trajectory of the business is much more important for investors to consider. We have estimates - from multiple Nongfu Spring analysts - going out to 2022, and you can see them free on our platform here.
Plus, you should also learn about the 1 warning sign we've spotted with Nongfu Spring .
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