Market forces rained on the parade of Dadi Early-Childhood Education Group Limited (GTSM:8437) shareholders today, when the covering analyst downgraded their forecasts for next year. Both revenue and earnings per share (EPS) estimates were cut sharply as the analyst factored in the latest outlook for the business, concluding that they were too optimistic previously.
After the downgrade, the consensus from Dadi Early-Childhood Education Group’s single analyst is for revenues of NT$977m in 2020, which would reflect a definite 11% decline in sales compared to the last year of performance. Statutory earnings per share are anticipated to tumble 24% to NT$11.22 in the same period. Before this latest update, the analyst had been forecasting revenues of NT$1.2b and earnings per share (EPS) of NT$15.25 in 2020. It looks like analyst sentiment has declined substantially, with a pretty serious reduction to revenue estimates and a large cut to earnings per share numbers as well.
The consensus price target fell 28% to NT$189, 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 Dadi Early-Childhood Education Group at NT$220 per share, while the most bearish prices it at NT$157. There are definitely some different views on the stock, but the range of estimates is not wide enough as to imply that the situation is unforecastable, in our view.
One way to get more context on these forecasts is to look at how they compare to both past performance, and how other companies in the same industry are performing. We would highlight that sales are expected to reverse, with the forecast 11% revenue decline a notable change from historical growth of 16% over the last five years. Compare this with our data, which suggests that other companies in the same industry are, in aggregate, expected to see their revenue grow 22% next year. So although its revenues are forecast to shrink, this cloud does not come with a silver lining – Dadi Early-Childhood Education Group is expected to lag the wider industry.
The Bottom Line
The most important thing to take away is that the analyst cut their earnings per share estimates, expecting a clear decline in business conditions. Regrettably, they also downgraded their revenue estimates, and the latest forecasts imply the business will grow sales slower than the wider market. After such a stark change in sentiment from the analyst, we’d understand if readers now felt a bit wary of Dadi Early-Childhood Education Group.
Even so, the longer term trajectory of the business is much more important for the value creation of shareholders. At least one analyst has provided forecasts out to 2021, which can be seen for 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.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Simply Wall St has no position in the stocks mentioned.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.