Downgrade: Here's How Analysts See Velesto Energy Berhad (KLSE:VELESTO) Performing In The Near Term

Market forces rained on the parade of Velesto Energy Berhad (KLSE:VELESTO) 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 latest downgrade, the current consensus, from the eight analysts covering Velesto Energy Berhad, is for revenues of RM399m in 2021, which would reflect a measurable 3.8% reduction in Velesto Energy Berhad's sales over the past 12 months. Losses are predicted to fall substantially, shrinking 88% to RM0.008. Yet prior to the latest estimates, the analysts had been forecasting revenues of RM460m and losses of RM0.0054 per share in 2021. 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.

View our latest analysis for Velesto Energy Berhad

The consensus price target was broadly unchanged at RM0.18, perhaps implicitly signalling that the weaker earnings outlook is not expected to have a long-term impact on the valuation. 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 Velesto Energy Berhad at RM0.27 per share, while the most bearish prices it at RM0.11. 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.

These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the Velesto Energy Berhad's past performance and to peers in the same industry. We would highlight that sales are expected to reverse, with a forecast 3.8% annualised revenue decline to the end of 2021. That is a notable change from historical growth of 7.1% over the last five years. By contrast, our data suggests that other companies (with analyst coverage) in the same industry are forecast to see their revenue grow 7.6% annually for the foreseeable future. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - Velesto Energy Berhad is expected to lag the wider industry.

The Bottom Line

The most important thing to take away is that analysts increased their loss per share estimates for this year. Regrettably, they also downgraded their revenue estimates, and the latest forecasts imply the business will grow sales slower 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 Velesto Energy Berhad after the downgrade.

With that said, the long-term trajectory of the company's earnings is a lot more important than next year. At Simply Wall St, we have a full range of analyst estimates for Velesto Energy Berhad going out to 2023, 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. 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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