These Analysts Think KWG Group Holdings Limited's (HKG:1813) Sales Are Under Threat

One thing we could say about the analysts on KWG Group Holdings Limited (HKG:1813) - they aren't optimistic, having just made a major negative revision to their near-term (statutory) forecasts for the organization. Revenue estimates were cut sharply as analysts signalled a weaker outlook - perhaps a sign that investors should temper their expectations as well. Shares are up 4.8% to HK$3.71 in the past week. We'd be curious to see if the downgrade is enough to reverse investor sentiment on the business.

Following the downgrade, the current consensus from KWG Group Holdings' 13 analysts is for revenues of CN¥29b in 2022 which - if met - would reflect a huge 21% increase on its sales over the past 12 months. Prior to the latest estimates, the analysts were forecasting revenues of CN¥41b in 2022. The consensus view seems to have become more pessimistic on KWG Group Holdings, noting the sizeable cut to revenue estimates in this update.

See our latest analysis for KWG Group Holdings

There was no particular change to the consensus price target of CN¥5.60, with KWG Group Holdings' latest outlook seemingly not enough to result in a change of valuation. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. The most optimistic KWG Group Holdings analyst has a price target of CN¥14.68 per share, while the most pessimistic values it at CN¥3.60. With such a wide range in price targets, the analysts are almost certainly betting on widely diverse outcomes for the underlying business. As a result it might not be possible to derive much meaning from the consensus price target, which is after all just an average of this wide range of estimates.

These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the KWG Group Holdings' past performance and to peers in the same industry. We would highlight that KWG Group Holdings' revenue growth is expected to slow, with the forecast 21% annualised growth rate until the end of 2022 being well below the historical 29% p.a. growth over the last five years. Juxtapose this against the other companies in the industry with analyst coverage, which are forecast to grow their revenues (in aggregate) 11% per year. So it's pretty clear that, while KWG Group Holdings' revenue growth is expected to slow, it's still expected to grow faster than the industry itself.

The Bottom Line

The most important thing to take away is that analysts cut their revenue estimates for this year. They're also forecasting more rapid revenue growth than the wider market. Given the stark change in sentiment, we'd understand if investors became more cautious on KWG Group Holdings after today.

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 KWG Group Holdings' business, like its declining profit margins. For more information, you can click here to discover this and the 3 other flags we've identified.

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.