Earnings Release: Here's Why Analysts Cut Their BOE Varitronix Limited (HKG:710) Price Target To HK$7.25

Investors in BOE Varitronix Limited (HKG:710) had a good week, as its shares rose 9.4% to close at HK$4.56 following the release of its interim results. Results overall were respectable, with statutory earnings of HK$0.60 per share roughly in line with what the analysts had forecast. Revenues of HK$6.2b came in 2.9% ahead of analyst predictions. Following the result, the analysts have updated their earnings model, and it would be good to know whether they think there's been a strong change in the company's prospects, or if it's business as usual. So we gathered the latest post-earnings forecasts to see what estimates suggest is in store for next year.

View our latest analysis for BOE Varitronix

Taking into account the latest results, the most recent consensus for BOE Varitronix from seven analysts is for revenues of HK$12.7b in 2024. If met, it would imply a solid 8.4% increase on its revenue over the past 12 months. Statutory earnings per share are expected to decrease 6.6% to HK$0.53 in the same period. Yet prior to the latest earnings, the analysts had been anticipated revenues of HK$11.9b and earnings per share (EPS) of HK$0.66 in 2024. While next year's revenue estimates increased, there was also a pretty serious reduction to EPS expectations, suggesting the consensus has a bit of a mixed view of these results.

The consensus price target fell 11% to HK$7.25, suggesting that the analysts are primarily focused on earnings as the driver of value for this business. 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. Currently, the most bullish analyst values BOE Varitronix at HK$10.48 per share, while the most bearish prices it at HK$5.00. 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.

Of course, another way to look at these forecasts is to place them into context against the industry itself. It's pretty clear that there is an expectation that BOE Varitronix's revenue growth will slow down substantially, with revenues to the end of 2024 expected to display 17% growth on an annualised basis. This is compared to a historical growth rate of 27% over the past five years. By way of comparison, the other companies in this industry with analyst coverage are forecast to grow their revenue at 12% annually. Even after the forecast slowdown in growth, it seems obvious that BOE Varitronix is also expected to grow faster than the wider industry.

The Bottom Line

The biggest concern is that the analysts reduced their earnings per share estimates, suggesting business headwinds could lay ahead for BOE Varitronix. Happily, they also upgraded their revenue estimates, and are forecasting them to grow faster than the wider industry. The consensus price target fell measurably, with the analysts seemingly not reassured by the latest results, leading to a lower estimate of BOE Varitronix's future valuation.

Keeping that in mind, we still think that the longer term trajectory of the business is much more important for investors to consider. We have estimates - from multiple BOE Varitronix analysts - going out to 2026, and you can see them free on our platform here.

However, before you get too enthused, we've discovered 1 warning sign for BOE Varitronix that you should be aware of.

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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.