China Traditional Chinese Medicine Holdings Co. Limited (HKG:570) Analysts Just Cut Their EPS Forecasts Substantially

The analysts covering China Traditional Chinese Medicine Holdings Co. Limited (HKG:570) delivered a dose of negativity to shareholders today, by making a substantial revision to their statutory 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 China Traditional Chinese Medicine Holdings from its six analysts is for revenues of CN¥20b in 2022 which, if met, would be a credible 3.2% increase on its sales over the past 12 months. Statutory earnings per share are supposed to decrease 6.2% to CN¥0.36 in the same period. Before this latest update, the analysts had been forecasting revenues of CN¥22b and earnings per share (EPS) of CN¥0.43 in 2022. It looks like analyst sentiment has declined substantially, with a substantial drop in revenue estimates and a considerable drop in earnings per share numbers as well.

See our latest analysis for China Traditional Chinese Medicine Holdings

It'll come as no surprise then, to learn that the analysts have cut their price target 6.8% to CN¥4.08. 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 China Traditional Chinese Medicine Holdings analyst has a price target of CN¥5.67 per share, while the most pessimistic values it at CN¥3.10. This is a fairly broad spread of estimates, suggesting that the analysts are forecasting a wide range of possible outcomes for the business.

These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the China Traditional Chinese Medicine Holdings' past performance and to peers in the same industry. It's pretty clear that there is an expectation that China Traditional Chinese Medicine Holdings' revenue growth will slow down substantially, with revenues to the end of 2022 expected to display 3.2% growth on an annualised basis. This is compared to a historical growth rate of 19% over the past five years. Compare this against other companies (with analyst forecasts) in the industry, which are in aggregate expected to see revenue growth of 13% annually. Factoring in the forecast slowdown in growth, it seems obvious that China Traditional Chinese Medicine Holdings is also expected to grow slower than other industry participants.

The Bottom Line

The most important thing to take away is that analysts cut their earnings per share estimates, expecting a clear decline in business conditions. Unfortunately analysts also downgraded their revenue estimates, and industry data suggests that China Traditional Chinese Medicine Holdings' revenues are expected to grow slower than the wider market. With a serious cut to this year's expectations and a falling price target, we wouldn't be surprised if investors were becoming wary of China Traditional Chinese Medicine Holdings.

Even so, the longer term trajectory of the business is much more important for the value creation of shareholders. We have estimates - from multiple China Traditional Chinese Medicine Holdings analysts - going out to 2024, 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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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.