Market forces rained on the parade of Duopharma Biotech Berhad (KLSE:DPHARMA) shareholders today, when the analysts downgraded their forecasts for this year. Revenue estimates were cut sharply as analysts signalled a weaker outlook - perhaps a sign that investors should temper their expectations as well. The stock price has risen 6.9% to RM1.70 over the past week. It will be interesting to see if this downgrade motivates investors to start selling their holdings.
Following the downgrade, the current consensus from Duopharma Biotech Berhad's four analysts is for revenues of RM656m in 2021 which - if met - would reflect a credible 4.5% increase on its sales over the past 12 months. Statutory earnings per share are presumed to accumulate 4.3% to RM0.073. Prior to this update, the analysts had been forecasting revenues of RM768m and earnings per share (EPS) of RM0.077 in 2021. It looks like analyst sentiment has fallen somewhat in this update, with a substantial drop in revenue estimates and a small dip in earnings per share numbers as well.
The consensus price target fell 12% to RM1.97, with the weaker earnings outlook clearly leading analyst valuation estimates. The consensus price target is just an average of individual analyst targets, so - it could be handy to see how wide the range of underlying estimates is. Currently, the most bullish analyst values Duopharma Biotech Berhad at RM2.05 per share, while the most bearish prices it at RM1.92. The narrow spread of estimates could suggest that the business' future is relatively easy to value, or that the analysts have a clear view on its prospects.
Looking at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up against both past performance and industry growth estimates. We would highlight that Duopharma Biotech Berhad's revenue growth is expected to slow, with the forecast 4.5% annualised growth rate until the end of 2021 being well below the historical 11% p.a. growth over the last five years. By way of comparison, the other companies in this industry with analyst coverage are forecast to grow their revenue at 13% per year. Factoring in the forecast slowdown in growth, it seems obvious that Duopharma Biotech Berhad is also expected to grow slower than other industry participants.
The Bottom Line
The biggest issue in the new estimates is that analysts have reduced their earnings per share estimates, suggesting business headwinds lay ahead for Duopharma Biotech Berhad. Unfortunately analysts also downgraded their revenue estimates, and industry data suggests that Duopharma Biotech Berhad's revenues are expected to grow slower than the wider market. The consensus price target fell measurably, with analysts seemingly not reassured by recent business developments, leading to a lower estimate of Duopharma Biotech Berhad's future valuation. Given the stark change in sentiment, we'd understand if investors became more cautious on Duopharma Biotech Berhad after today.
After a downgrade like this, it's pretty clear that previous forecasts were too optimistic. What's more, we've spotted several possible issues with Duopharma Biotech Berhad's business, like concerns around earnings quality. Learn more, and discover the 1 other concern we've identified, for free on our platform here.
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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.
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