Market forces rained on the parade of Poly Property Group Co., Limited (HKG:119) 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.
After the downgrade, the consensus from Poly Property Group's two analysts is for revenues of HK$31b in 2020, which would reflect a stressful 23% decline in sales compared to the last year of performance. Prior to the latest estimates, the analysts were forecasting revenues of HK$37b in 2020. The consensus view seems to have become more pessimistic on Poly Property Group, noting the substantial drop in revenue estimates in this update.
Notably, the analysts have cut their price target 5.6% to HK$3.35, suggesting concerns around Poly Property Group's valuation. 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. Currently, the most bullish analyst values Poly Property Group at HK$3.50 per share, while the most bearish prices it at HK$3.20. This is a very narrow spread of estimates, implying either that Poly Property Group is an easy company to value, or - more likely - the analysts are relying heavily on some key assumptions.
These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the Poly Property Group's past performance and to peers in the same industry. We would highlight that sales are expected to reverse, with the forecast 23% revenue decline a notable change from historical growth of 4.7% over the last five years. Compare this with our data, which suggests that other companies in the same industry are, in aggregate, expected to see their revenue grow 15% next year. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - Poly Property Group is expected to lag the wider industry.
The Bottom Line
The clear low-light was that analysts slashing their revenue forecasts for Poly Property Group this year. They also expect company revenue to perform worse than the wider market. Furthermore, there was a cut to the price target, suggesting that the latest news has led to more pessimism about the intrinsic value of the business. Overall, given the drastic downgrade to this year's forecasts, we'd be feeling a little more wary of Poly Property Group going forwards.
Looking for more information? We have estimates for Poly Property Group from its two analysts out until 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.
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