Downgrade: Here's How Analysts See Momo Inc. (NASDAQ:MOMO) Performing In The Near Term
Market forces rained on the parade of Momo Inc. (NASDAQ:MOMO) 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. Recent action in the market also suggests Momo has lost favour recently, which could make today's downgrade an even greater concern in the near term. The stock has already fallen 7.2% (to CN¥21.88) in the last week.
Following the downgrade, the most recent consensus for Momo from its 17 analysts is for revenues of CN¥18b in 2020 which, if met, would be a reasonable 3.2% increase on its sales over the past 12 months. Statutory earnings per share are presumed to increase 5.8% to CN¥15.09. Previously, the analysts had been modelling revenues of CN¥20b and earnings per share (EPS) of CN¥19.74 in 2020. Indeed, we can see that the analysts are a lot more bearish about Momo's prospects, administering a substantial drop in revenue estimates and slashing their EPS estimates to boot.
View our latest analysis for Momo
It'll come as no surprise then, to learn that the analysts have cut their price target 15% to CN¥257. 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. The most optimistic Momo analyst has a price target of CN¥324 per share, while the most pessimistic values it at CN¥185. These price targets show that analysts do have some differing views on the business, but the estimates do not vary enough to suggest to us that some are betting on wild success or utter failure.
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. It's pretty clear that there is an expectation that Momo's revenue growth will slow down substantially, with revenues next year expected to grow 3.2%, compared to a historical growth rate of 53% over the past five years. By way of comparison, the other companies in this industry with analyst coverage are forecast to grow their revenue at 14% per year. So it's pretty clear that, while revenue growth is expected to slow down, the wider industry is also expected to grow faster than Momo.
The Bottom Line
The most important thing to take away is that analysts cut their earnings per share estimates, expecting a clear decline in business conditions. Unfortunately analysts also downgraded their revenue estimates, and industry data suggests that Momo's revenues are expected to grow slower than the wider market. Given the scope of the downgrades, it would not be a surprise to see the market become more wary of the business.
Even so, the longer term trajectory of the business is much more important for the value creation of shareholders. We have estimates - from multiple Momo analysts - going out to 2022, and you can see them free on our platform here.
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.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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.
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