Things Look Grim For Dingdong (Cayman) Limited (NYSE:DDL) After Today's Downgrade

Today is shaping up negative for Dingdong (Cayman) Limited (NYSE:DDL) shareholders, with the analysts delivering a substantial negative revision to this year's forecasts. Both revenue and earnings per share (EPS) forecasts went under the knife, suggesting analysts have soured majorly on the business.

After the downgrade, the consensus from Dingdong (Cayman)'s eight analysts is for revenues of CN¥22b in 2023, which would reflect a small 7.2% decline in sales compared to the last year of performance. The loss per share is anticipated to greatly reduce in the near future, narrowing 94% to CN¥0.23. Yet before this consensus update, the analysts had been forecasting revenues of CN¥26b and losses of CN¥0.20 per share in 2023. Ergo, there's been a clear change in sentiment, with the analysts administering a notable cut to this year's revenue estimates, while at the same time increasing their loss per share forecasts.

View our latest analysis for Dingdong (Cayman)

There was no major change to the consensus price target of CN¥42.05, signalling that the business is performing roughly in line with expectations, despite lower earnings per share forecasts. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company's valuation. There are some variant perceptions on Dingdong (Cayman), with the most bullish analyst valuing it at CN¥7.34 and the most bearish at CN¥2.60 per share. With such a narrow range of valuations, analysts apparently share similar views on what they think the business is worth.

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 a forecast 9.5% annualised revenue decline to the end of 2023. That is a notable change from historical growth of 42% over the last three years. Compare this with our data, which suggests that other companies in the same industry are, in aggregate, expected to see their revenue grow 4.4% per year. It's pretty clear that Dingdong (Cayman)'s revenues are expected to perform substantially worse than the wider industry.

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 Dingdong (Cayman). 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 Dingdong (Cayman) after the downgrade.

Even so, the longer term trajectory of the business is much more important for the value creation of shareholders. At Simply Wall St, we have a full range of analyst estimates for Dingdong (Cayman) going out to 2025, 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. 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.