Need To Know: The Consensus Just Cut Its Yalla Group Limited (NYSE:YALA) Estimates For 2022

Market forces rained on the parade of Yalla Group Limited (NYSE:YALA) shareholders today, when the analysts downgraded their forecasts for this year. There was a fairly draconian cut to their revenue estimates, perhaps an implicit admission that previous forecasts were much too optimistic. Surprisingly the share price has been buoyant, rising 14% to US$3.73 in the past 7 days. It will be interesting to see if the downgrade has an impact on buying demand for the company's shares.

Following the downgrade, the current consensus from Yalla Group's three analysts is for revenues of US$286m in 2022 which - if met - would reflect a credible 2.9% increase on its sales over the past 12 months. Statutory earnings per share are anticipated to fall 12% to US$0.48 in the same period. Previously, the analysts had been modelling revenues of US$320m and earnings per share (EPS) of US$0.51 in 2022. Indeed, we can see that analyst sentiment has declined measurably after the new consensus came out, with a measurable cut to revenue estimates and a small dip in EPS estimates to boot.

View our latest analysis for Yalla Group

Analysts made no major changes to their price target of US$5.57, suggesting the downgrades are not expected to have a long-term impact on Yalla Group's valuation. There's another way to think about price targets though, and that's to look at the range of price targets put forward by analysts, because a wide range of estimates could suggest a diverse view on possible outcomes for the business. The most optimistic Yalla Group analyst has a price target of US$7.00 per share, while the most pessimistic values it at US$4.70. 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 Yalla Group's revenue growth is expected to slow, with the forecast 3.9% annualised growth rate until the end of 2022 being well below the historical 53% growth over the last year. By way of comparison, the other companies in this industry with analyst coverage are forecast to grow their revenue at 13% 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 Yalla Group.

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. Regrettably, they also downgraded their revenue estimates, and the latest forecasts imply the business will grow sales slower than the wider market. Often, one downgrade can set off a daisy-chain of cuts, especially if an industry is in decline. So we wouldn't be surprised if the market became a lot more cautious on Yalla Group after today.

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 Yalla Group going out to 2023, 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.