Things Look Grim For GDB Holdings Berhad (KLSE:GDB) After Today's Downgrade

One thing we could say about the analysts on GDB Holdings Berhad (KLSE:GDB) - they aren't optimistic, having just made a major negative revision to their near-term (statutory) forecasts for the organization. Both revenue and earnings per share (EPS) estimates were cut sharply as analysts factored in the latest outlook for the business, concluding that they were too optimistic previously.

After the downgrade, the three analysts covering GDB Holdings Berhad are now predicting revenues of RM645m in 2021. If met, this would reflect a substantial 73% improvement in sales compared to the last 12 months. Statutory earnings per share are presumed to leap 52% to RM0.07. Before this latest update, the analysts had been forecasting revenues of RM778m and earnings per share (EPS) of RM0.086 in 2021. Indeed, we can see that the analysts are a lot more bearish about GDB Holdings Berhad's prospects, administering a substantial drop in revenue estimates and slashing their EPS estimates to boot.

See our latest analysis for GDB Holdings Berhad

Analysts made no major changes to their price target of RM1.28, suggesting the downgrades are not expected to have a long-term impact on GDB Holdings Berhad's 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 GDB Holdings Berhad at RM1.50 per share, while the most bearish prices it at RM1.01. 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 GDB Holdings Berhad shareholders.

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. It's clear from the latest estimates that GDB Holdings Berhad's rate of growth is expected to accelerate meaningfully, with the forecast 73% annualised revenue growth to the end of 2021 noticeably faster than its historical growth of 4.5% over the past year. Compare this with other companies in the same industry, which are forecast to grow their revenue 13% annually. Factoring in the forecast acceleration in revenue, it's pretty clear that GDB Holdings Berhad is expected to grow much faster than its 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. While analysts did downgrade their revenue estimates, these forecasts still imply revenues will perform better than the wider market. We're also surprised to see that the price target went unchanged. Still, deteriorating business conditions (assuming accurate forecasts!) can be a leading indicator for the stock price, so we wouldn't blame investors for being more cautious on GDB Holdings Berhad after the downgrade.

There might be good reason for analyst bearishness towards GDB Holdings Berhad, like concerns around earnings quality. Learn more, and discover the 1 other concern we've identified, for 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. 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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