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Time To Panic? One Analyst Thinks Shun Tak Holdings Limited's (HKG:242) Revenues Are Under Threat

The analyst covering Shun Tak Holdings Limited (HKG:242) delivered a dose of negativity to shareholders today, by making a substantial revision to their statutory forecasts for this year. This report focused on revenue estimates, and it looks as though the consensus view of the business has become substantially more conservative.

Following the latest downgrade, the lone analyst covering Shun Tak Holdings provided consensus estimates of HK$3.1b revenue in 2020, which would reflect a disturbing 79% decline on its sales over the past 12 months. Prior to the latest estimates, the analyst was forecasting revenues of HK$6.3b in 2020. It looks like forecasts have become a fair bit less optimistic on Shun Tak Holdings, given the pretty serious reduction to revenue estimates.

See our latest analysis for Shun Tak Holdings

SEHK:242 Past and Future Earnings April 1st 2020
SEHK:242 Past and Future Earnings April 1st 2020

The consensus price target fell 16% to HK$4.35, with the analyst clearly less optimistic about Shun Tak Holdings' valuation following this update. 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. Currently, the most bullish analyst values Shun Tak Holdings at HK$5.10 per share, while the most bearish prices it at HK$3.60. This shows there is still some diversity in estimates, but analysts don't appear to be totally split on the stock as though it might be a success or failure situation.

Taking a look at the bigger picture now, one of the ways we can understand these forecasts is to see how they compare to both past performance and industry growth estimates. These estimates imply that sales are expected to slow, with a forecast revenue decline of 79%, a significant reduction from annual growth of 17% 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 6.7% next year. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - Shun Tak Holdings is expected to lag the wider industry.

The Bottom Line

The most important thing to take away is that the analyst cut their revenue estimates for this year. They also expect company revenue to perform worse 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 Shun Tak Holdings' future valuation. Given the stark change in sentiment, we'd understand if investors became more cautious on Shun Tak Holdings after today.

That said, this broker might have good reason to be negative on Shun Tak Holdings, given a weak balance sheet. For more information, you can click here to discover this and the 4 other warning signs we've identified.

You can also see our analysis of Shun Tak Holdings' Board and CEO remuneration and experience, and whether company insiders have been buying stock.

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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