The Consensus EPS Estimates For Sunac Services Holdings Limited (HKG:1516) Just Fell A Lot

Market forces rained on the parade of Sunac Services Holdings Limited (HKG:1516) shareholders today, when the analysts downgraded their forecasts for this year. Revenue and earnings per share (EPS) forecasts were both revised downwards, with the analysts seeing grey clouds on the horizon.

Following the latest downgrade, Sunac Services Holdings' 19 analysts currently expect revenues in 2022 to be CN¥8.5b, approximately in line with the last 12 months. Per-share losses are expected to explode, reaching CN¥0.062 per share. Before this latest update, the analysts had been forecasting revenues of CN¥10b and earnings per share (EPS) of CN¥0.57 in 2022. So we can see that the consensus has become notably more bearish on Sunac Services Holdings' outlook with these numbers, making a measurable cut to this year's revenue estimates. Furthermore, they expect the business to be loss-making this year, compared to their previous forecasts of a profit.

See our latest analysis for Sunac Services Holdings

The consensus price target fell 21% to HK$5.42, implicitly signalling that lower earnings per share are a leading indicator for Sunac Services Holdings' valuation. 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. Currently, the most bullish analyst values Sunac Services Holdings at HK$15.80 per share, while the most bearish prices it at HK$1.60. We would probably assign less value to the forecasts in this situation, because such a wide range of estimates could imply that the future of this business is difficult to value accurately. With this in mind, we wouldn't rely too heavily on the consensus price target, as it is just an average and analysts clearly have some deeply divergent views on the business.

Looking at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up against both past performance and industry growth estimates. These estimates imply that sales are expected to slow, with a forecast annualised revenue decline of 1.3% by the end of 2022. This indicates a significant reduction from annual growth of 39% over the last year. By contrast, our data suggests that other companies (with analyst coverage) in the same industry are forecast to see their revenue grow 8.4% annually for the foreseeable future. It's pretty clear that Sunac Services Holdings' revenues are expected to perform substantially worse than the wider industry.

The Bottom Line

The biggest low-light for us was that the forecasts for Sunac Services Holdings dropped from profits to a loss this year. Regrettably, they also downgraded their revenue estimates, and the latest forecasts imply the business will grow sales 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 Sunac Services Holdings.

After a downgrade like this, it's pretty clear that previous forecasts were too optimistic. What's more, we've spotted several possible issues with Sunac Services Holdings' business, like the risk of cutting its dividend. Learn more, and discover the 1 other flag we've identified, for 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.