GOME Retail Holdings Limited (HKG:493) Analysts Just Slashed This Year's Estimates

The latest analyst coverage could presage a bad day for GOME Retail Holdings Limited (HKG:493), 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 analysts seeing grey clouds on the horizon. Shares are up 9.7% to HK$0.51 in the past week. Investors could be forgiven for changing their mind on the business following the downgrade; but it's not clear if the revised forecasts will lead to selling activity.

Following the downgrade, the most recent consensus for GOME Retail Holdings from its four analysts is for revenues of CN¥53b in 2022 which, if met, would be a solid 14% increase on its sales over the past 12 months. Losses are predicted to fall substantially, shrinking 49% to CN¥0.07. Yet prior to the latest estimates, the analysts had been forecasting revenues of CN¥61b and losses of CN¥0.036 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 GOME Retail Holdings

The consensus price target fell 14% to CN¥0.46, implicitly signalling that lower earnings per share are a leading indicator for GOME Retail Holdings' valuation. That's not the only conclusion we can draw from this data however, as some investors also like to consider the spread in estimates when evaluating analyst price targets. Currently, the most bullish analyst values GOME Retail Holdings at CN¥0.70 per share, while the most bearish prices it at CN¥0.45. Analysts definitely have varying views on the business, but the spread of estimates is not wide enough in our view to suggest that extreme outcomes could await GOME Retail Holdings shareholders.

One way to get more context on these forecasts is to look at how they compare to both past performance, and how other companies in the same industry are performing. One thing stands out from these estimates, which is that GOME Retail Holdings is forecast to grow faster in the future than it has in the past, with revenues expected to display 14% annualised growth until the end of 2022. If achieved, this would be a much better result than the 13% annual decline over the past five years. Compare this against analyst estimates for the broader industry, which suggest that (in aggregate) industry revenues are expected to grow 16% annually. So it looks like GOME Retail Holdings is expected to grow at about the same rate as the wider 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 GOME Retail Holdings. Lamentably, they also downgraded their sales forecasts, but the business is still expected to grow at roughly the same rate as the market itself. 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 GOME Retail Holdings going out to 2023, 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.