SenseTime Group Inc. (HKG:20) Analysts Just Cut Their EPS Forecasts Substantially

Market forces rained on the parade of SenseTime Group Inc. (HKG:20) shareholders today, when the analysts downgraded their forecasts for this year. Both revenue and earnings per share (EPS) estimates were cut sharply as the analysts factored in the latest outlook for the business, concluding that they were too optimistic previously.

Following the downgrade, the most recent consensus for SenseTime Group from its ten analysts is for revenues of CN¥5.2b in 2023 which, if met, would be a huge 37% increase on its sales over the past 12 months. Losses are predicted to fall substantially, shrinking 34% to CN¥0.12. Yet before this consensus update, the analysts had been forecasting revenues of CN¥7.0b and losses of CN¥0.10 per share in 2023. 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.

Check out our latest analysis for SenseTime Group

Analysts lifted their price target 14% to CN¥2.65, implicitly signalling that lower earnings per share are not expected to have a longer-term impact on the stock's value. 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 SenseTime Group at CN¥3.60 per share, while the most bearish prices it at CN¥2.20. This shows there is still some diversity in estimates, but analysts don't appear to be totally split on the stock as though it might be a success or failure situation.

Of course, another way to look at these forecasts is to place them into context against the industry itself. The analysts are definitely expecting SenseTime Group's growth to accelerate, with the forecast 37% annualised growth to the end of 2023 ranking favourably alongside historical growth of 9.4% per annum over the past three years. Compare this with other companies in the same industry, which are forecast to grow their revenue 26% annually. Factoring in the forecast acceleration in revenue, it's pretty clear that SenseTime Group is expected to grow much faster than its industry.

The Bottom Line

The most important thing to take away is that analysts increased their loss per share estimates for this year. While analysts did downgrade their revenue estimates, these forecasts still imply revenues will perform better than the wider market. The rising price target is a puzzle, but still - with a serious cut to this year's outlook, we wouldn't be surprised if investors were a bit wary of SenseTime Group.

Still, the long-term prospects of the business are much more relevant than next year's earnings. We have estimates - from multiple SenseTime Group analysts - going out to 2025, and you can see them 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.