The analyst covering Shanghai Dongzheng Automotive Finance Co., Ltd. (HKG:2718) delivered a dose of negativity to shareholders today, by making a substantial revision to their statutory forecasts for this year. Revenue estimates were cut sharply as the analyst signalled a weaker outlook – perhaps a sign that investors should temper their expectations as well.
After this downgrade, Shanghai Dongzheng Automotive Finance’s one analyst is now forecasting revenues of CN¥770m in 2020. This would be a huge 30% improvement in sales compared to the last 12 months. Prior to the latest estimates, the analyst was forecasting revenues of CN¥993m in 2020. The consensus view seems to have become more pessimistic on Shanghai Dongzheng Automotive Finance, noting the sizeable cut to revenue estimates in this update.
The consensus price target fell 64% to CN¥0.49, with the analyst clearly less optimistic about Shanghai Dongzheng Automotive Finance’s valuation following this update.
Looking at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up against both past performance and industry growth estimates. It’s clear from the latest estimates that Shanghai Dongzheng Automotive Finance’s rate of growth is expected to accelerate meaningfully, with the forecast 30% revenue growth noticeably faster than its historical growth of 22% p.a. over the past three years. Compare this with other companies in the same industry, which are forecast to grow their revenue 6.5% next year. It seems obvious that, while the growth outlook is brighter than the recent past, the analyst also expect Shanghai Dongzheng Automotive Finance to grow faster than the wider industry.
The Bottom Line
The clear low-light was that the analyst slashing their revenue forecasts for Shanghai Dongzheng Automotive Finance this year. The analyst also expects revenues to grow faster than the wider market. The consensus price target fell measurably, with the analyst seemingly not reassured by recent business developments, leading to a lower estimate of Shanghai Dongzheng Automotive Finance’s future valuation. Given the stark change in sentiment, we’d understand if investors became more cautious on Shanghai Dongzheng Automotive Finance after today.
There might be good reason for analyst bearishness towards Shanghai Dongzheng Automotive Finance, like concerns around earnings quality. Learn more, and discover the 1 other risk we’ve identified, 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.
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. 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. Thank you for reading.