China Traditional Chinese Medicine Holdings Co. Limited (HKG:570) Analysts Are Reducing Their Forecasts For This Year

The latest analyst coverage could presage a bad day for China Traditional Chinese Medicine Holdings Co. Limited (HKG:570), with the analysts making across-the-board cuts to their statutory estimates that might leave shareholders a little shell-shocked. Revenue and earnings per share (EPS) forecasts were both revised downwards, with the analysts seeing grey clouds on the horizon. Investors however, have been notably more optimistic about China Traditional Chinese Medicine Holdings recently, with the stock price up a notable 16% to HK$4.38 in the past week. With such a sharp increase, it seems brokers may have seen something that is not yet being priced in by the wider market.

Following the latest downgrade, the current consensus, from the six analysts covering China Traditional Chinese Medicine Holdings, is for revenues of CN¥16b in 2022, which would reflect a discernible 6.7% reduction in China Traditional Chinese Medicine Holdings' sales over the past 12 months. Statutory earnings per share are supposed to drop 17% to CN¥0.23 in the same period. Prior to this update, the analysts had been forecasting revenues of CN¥17b and earnings per share (EPS) of CN¥0.28 in 2022. Indeed, we can see that the analysts are a lot more bearish about China Traditional Chinese Medicine Holdings' prospects, administering a measurable cut to revenue estimates and slashing their EPS estimates to boot.

Check out 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 9.4% to CN¥3.52. There's another way to think about price targets though, and that's to look at the range of price targets put forward by analysts, because a wide range of estimates could suggest a diverse view on possible outcomes for the business. Currently, the most bullish analyst values China Traditional Chinese Medicine Holdings at CN¥5.48 per share, while the most bearish prices it at CN¥2.61. 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.

Taking a look at the bigger picture now, one of the ways we can understand these forecasts is to see how they compare to both past performance and industry growth estimates. These estimates imply that sales are expected to slow, with a forecast annualised revenue decline of 6.7% by the end of 2022. This indicates a significant reduction from annual growth of 17% 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 16% per year. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - China Traditional Chinese Medicine Holdings is expected to lag the wider industry.

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. Regrettably, they also downgraded their revenue estimates, and the latest forecasts imply the business will grow sales slower than the wider market. Given the scope of the downgrades, it would not be a surprise to see the market become more wary of the business.

With that said, the long-term trajectory of the company's earnings is a lot more important than next year. At Simply Wall St, we have a full range of analyst estimates for China Traditional Chinese Medicine 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.