Analyst Forecasts Just Became More Bearish On Giordano International Limited (HKG:709)

The analysts covering Giordano International Limited (HKG:709) delivered a dose of negativity to shareholders today, by making a substantial revision to their statutory forecasts for this year. There was a fairly draconian cut to their revenue estimates, perhaps an implicit admission that previous forecasts were much too optimistic.

After this downgrade, Giordano International's two analysts are now forecasting revenues of HK$3.5b in 2021. This would be a reasonable 4.2% improvement in sales compared to the last 12 months. Statutory earnings per share are presumed to leap 41% to HK$0.11. Prior to this update, the analysts had been forecasting revenues of HK$4.0b and earnings per share (EPS) of HK$0.12 in 2021. Indeed, we can see that analyst sentiment has declined measurably after the new consensus came out, with a measurable cut to revenue estimates and a small dip in EPS estimates to boot.

View our latest analysis for Giordano International

The consensus price target fell 6.0% to HK$1.87, with the weaker earnings outlook clearly leading analyst valuation estimates. 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 Giordano International at HK$1.96 per share, while the most bearish prices it at HK$1.77. This is a very narrow spread of estimates, implying either that Giordano International is an easy company to value, or - more likely - the analysts are relying heavily on some key assumptions.

These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the Giordano International's past performance and to peers in the same industry. One thing stands out from these estimates, which is that Giordano International is forecast to grow faster in the future than it has in the past, with revenues expected to display 8.5% annualised growth until the end of 2021. If achieved, this would be a much better result than the 9.0% 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 18% per year. So although Giordano International's revenue growth is expected to improve, it is still expected to grow slower than the 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. Unfortunately analysts also downgraded their revenue estimates, and industry data suggests that Giordano International's revenues are expected to grow 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 Giordano International's future valuation. Given the stark change in sentiment, we'd understand if investors became more cautious on Giordano International after today.

Worse yet, our risk analysis suggests that Giordano International may find it hard to maintain its dividend following these downgrades. For more information, you can click here to learn more about our dividend analysis and the 1 potential concern 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.
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