Today is shaping up negative for Capital A Berhad (KLSE:CAPITALA) shareholders, with the analysts delivering a substantial negative revision to this year's forecasts. 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. Shares are up 5.6% to RM0.66 in the past week. It will be interesting to see if this downgrade motivates investors to start selling their holdings.
After this downgrade, Capital A Berhad's twelve analysts are now forecasting revenues of RM6.0b in 2022. This would be a sizeable improvement in sales compared to the last 12 months. Losses are predicted to fall substantially, shrinking 64% to RM0.27. Yet before this consensus update, the analysts had been forecasting revenues of RM6.9b and losses of RM0.19 per share in 2022. 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.
The consensus price target fell 8.3% to RM0.79, implicitly signalling that lower earnings per share are a leading indicator for Capital A 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. There are some variant perceptions on Capital A Berhad, with the most bullish analyst valuing it at RM1.45 and the most bearish at RM0.19 per share. As you can see the range of estimates is wide, with the lowest valuation coming in at less than half the most bullish estimate, suggesting there are some strongly diverging views on how think this business will perform. As a result it might not be possible to derive much meaning from the consensus price target, which is after all just an average of this wide range of estimates.
Taking a look at the bigger picture now, one of the ways we can understand these forecasts is to see how they compare to both past performance and industry growth estimates. For example, we noticed that Capital A Berhad's rate of growth is expected to accelerate meaningfully, with revenues forecast to exhibit 7x growth to the end of 2022 on an annualised basis. That is well above its historical decline of 20% a year over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in the industry are forecast to see their revenue grow 27% per year. So it looks like Capital A Berhad is expected to grow faster than its competitors, at least for a while.
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 Capital A Berhad. While analysts did downgrade their revenue estimates, these forecasts still imply revenues will perform better than the wider market. With a serious cut to this year's expectations and a falling price target, we wouldn't be surprised if investors were becoming wary of Capital A Berhad.
So things certainly aren't looking great, and you should also know that we've spotted some potential warning signs with Capital A Berhad, including dilutive stock issuance over the past year. For more information, you can click here to discover this and the 2 other warning signs we've identified.
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.
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.