Time To Worry? Analysts Just Downgraded Their Sa Sa International Holdings Limited (HKG:178) Outlook

The latest analyst coverage could presage a bad day for Sa Sa International Holdings Limited (HKG:178), with the analysts making across-the-board cuts to their statutory estimates that might leave shareholders a little shell-shocked. Revenue estimates were cut sharply as the analysts signalled a weaker outlook - perhaps a sign that investors should temper their expectations as well.

After the downgrade, the five analysts covering Sa Sa International Holdings are now predicting revenues of HK$3.5b in 2022. If met, this would reflect a credible 4.9% improvement in sales compared to the last 12 months. Losses are expected to be contained, narrowing 19% from last year to HK$0.076. Yet prior to the latest estimates, the analysts had been forecasting revenues of HK$3.9b and losses of HK$0.072 per share in 2022. So there's been quite a change-up of views after the recent consensus updates, with the analysts making a serious cut to their revenue forecasts while also expecting losses per share to increase.

View our latest analysis for Sa Sa International Holdings

The consensus price target fell 8.6% to HK$1.51, implicitly signalling that lower earnings per share are a leading indicator for Sa Sa International Holdings' valuation. 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. The most optimistic Sa Sa International Holdings analyst has a price target of HK$1.90 per share, while the most pessimistic values it at HK$0.90. This is a fairly broad spread of estimates, suggesting that the analysts are forecasting a wide range of possible outcomes for the business.

Of course, another way to look at these forecasts is to place them into context against the industry itself. One thing stands out from these estimates, which is that Sa Sa International Holdings is forecast to grow faster in the future than it has in the past, with revenues expected to display 4.9% annualised growth until the end of 2022. If achieved, this would be a much better result than the 17% annual decline over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to see their revenue grow 19% per year. So although Sa Sa International Holdings' revenue growth is expected to improve, it is still expected to grow slower than the industry.

The Bottom Line

The most important thing to note from this downgrade is that the consensus increased its forecast losses this year, suggesting all may not be well at Sa Sa International Holdings. Regrettably, they also downgraded their revenue estimates, and the latest forecasts imply the business will grow sales slower than the wider market. The consensus price target fell measurably, with analysts seemingly not reassured by recent business developments, leading to a lower estimate of Sa Sa International Holdings' future valuation. Overall, given the drastic downgrade to this year's forecasts, we'd be feeling a little more wary of Sa Sa International Holdings going forwards.

Even so, the longer term trajectory of the business is much more important for the value creation of shareholders. We have estimates - from multiple Sa Sa International Holdings analysts - going out to 2024, and you can see them free on our platform here.

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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.