The analysts covering Minsheng Education Group Company Limited (HKG:1569) delivered a dose of negativity to shareholders today, by making a substantial revision to their statutory 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. The stock price has risen 8.1% to CN¥1.07 over the past week. It will be interesting to see if this downgrade motivates investors to start selling their holdings.
Following the downgrade, the most recent consensus for Minsheng Education Group from its five analysts is for revenues of CN¥1.1b in 2020 which, if met, would be a meaningful 12% increase on its sales over the past 12 months. Per-share earnings are expected to surge 25% to CN¥0.11. Prior to this update, the analysts had been forecasting revenues of CN¥1.3b and earnings per share (EPS) of CN¥0.13 in 2020. It looks like analyst sentiment has declined substantially, with a substantial drop in revenue estimates and a real cut to earnings per share numbers as well.
The consensus price target fell 8.7% to CN¥1.84, with the weaker earnings outlook clearly leading analyst valuation estimates. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. Currently, the most bullish analyst values Minsheng Education Group at CN¥2.35 per share, while the most bearish prices it at CN¥1.19. This is a fairly broad spread of estimates, suggesting that the analysts are forecasting a wide range of possible outcomes for the business.
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 pretty clear that there is an expectation that Minsheng Education Group's revenue growth will slow down substantially, with revenues next year expected to grow 12%, compared to a historical growth rate of 20% 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 21% 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 Minsheng Education Group.
The Bottom Line
The biggest issue in the new estimates is that analysts have reduced their earnings per share estimates, suggesting business headwinds lay ahead for Minsheng Education Group. Regrettably, they also downgraded their revenue estimates, and the latest forecasts imply the business will grow sales slower than the wider market. After such a stark change in sentiment from analysts, we'd understand if readers now felt a bit wary of Minsheng Education Group.
Still, the long-term prospects of the business are much more relevant than next year's earnings. At Simply Wall St, we have a full range of analyst estimates for Minsheng Education Group 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.
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