SenseTime Group Inc. (HKG:20) Analysts Just Slashed This Year's Estimates

The latest analyst coverage could presage a bad day for SenseTime Group Inc. (HKG:20), with the analysts making across-the-board cuts to their statutory estimates that might leave shareholders a little shell-shocked. Both revenue and earnings per share (EPS) forecasts went under the knife, suggesting the analysts have soured majorly on the business. The stock price has risen 4.1% to HK$2.29 over the past week. We'd be curious to see if the downgrade is enough to reverse investor sentiment on the business.

After the downgrade, the nine analysts covering SenseTime Group are now predicting revenues of CN¥5.4b in 2022. If met, this would reflect a substantial 20% improvement in sales compared to the last 12 months. Losses are predicted to fall substantially, shrinking 75% to CN¥0.12. Yet prior to the latest estimates, the analysts had been forecasting revenues of CN¥6.1b and losses of CN¥0.082 per share in 2022. Ergo, there's been a clear change in sentiment, with the analysts administering a notable cut to this year's revenue estimates, while at the same time increasing their loss per share forecasts.

See our latest analysis for SenseTime Group

The consensus price target fell 33% to CN¥2.80, with the analysts clearly concerned about the company following the weaker revenue and earnings outlook. 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 SenseTime Group analyst has a price target of CN¥4.68 per share, while the most pessimistic values it at CN¥1.94. Note the wide gap in analyst price targets? This implies to us that there is a fairly broad range of possible scenarios for the underlying business.

Another way we can view these estimates is in the context of the bigger picture, such as how the forecasts stack up against past performance, and whether forecasts are more or less bullish relative to other companies in the industry. The analysts are definitely expecting SenseTime Group's growth to accelerate, with the forecast 20% annualised growth to the end of 2022 ranking favourably alongside historical growth of 5.4% per annum over the past year. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to grow their revenue at 27% per year. So it's clear that despite the acceleration in growth, SenseTime Group is expected to grow meaningfully slower than the industry average.

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 SenseTime Group. Unfortunately analysts also downgraded their revenue estimates, and industry data suggests that SenseTime Group's revenues are expected to grow slower than the wider market. 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. We have estimates - from multiple SenseTime Group analysts - going out to 2024, 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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