These Analysts Just Made A Massive Downgrade To Their Inspur International Limited (HKG:596) EPS Forecasts
One thing we could say about the analysts on Inspur International Limited (HKG:596) - they aren't optimistic, having just made a major negative revision to their near-term (statutory) forecasts for the organization. Revenue and earnings per share (EPS) forecasts were both revised downwards, with analysts seeing grey clouds on the horizon. At HK$2.50, shares are up 5.0% in the past 7 days. Investors could be forgiven for changing their mind on the business following the downgrade; but it's not clear if the revised forecasts will lead to selling activity.
Following the downgrade, the most recent consensus for Inspur International from its five analysts is for revenues of HK$3.0b in 2020 which, if met, would be an okay 3.7% increase on its sales over the past 12 months. Statutory earnings per share are presumed to increase 5.6% to HK$0.19. Previously, the analysts had been modelling revenues of HK$3.7b and earnings per share (EPS) of HK$0.29 in 2020. Indeed, we can see that the analysts are a lot more bearish about Inspur International's prospects, administering a measurable cut to revenue estimates and slashing their EPS estimates to boot.
See our latest analysis for Inspur International
It'll come as no surprise then, to learn that the analysts have cut their price target 16% to HK$3.86. 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. There are some variant perceptions on Inspur International, with the most bullish analyst valuing it at HK$5.10 and the most bearish at HK$2.30 per share. Note the wide gap in analyst price targets? This implies to us that there is a fairly broad range of possible scenarios for the underlying business.
These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the Inspur International's past performance and to peers in the same industry. It's pretty clear that there is an expectation that Inspur International's revenue growth will slow down substantially, with revenues next year expected to grow 3.7%, compared to a historical growth rate of 28% over the past five years. Compare this against other companies (with analyst forecasts) in the industry, which are in aggregate expected to see revenue growth of 25% next 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 Inspur International.
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 Inspur International's revenues are expected to grow slower 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 Inspur International.
Uncomfortably, our automated valuation tool also suggests that Inspur International stock could be overvalued following the downgrade. Shareholders could be left disappointed if these estimates play out. You can learn more about our valuation methodology for 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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