The latest analyst coverage could presage a bad day for Jiangsu Linyang Energy Co., Ltd. (SHSE:601222), with the analysts making across-the-board cuts to their statutory estimates that might leave shareholders a little shell-shocked. Revenue and earnings per share (EPS) forecasts were both revised downwards, with the analysts seeing grey clouds on the horizon.

After the downgrade, the three analysts covering Jiangsu Linyang Energy are now predicting revenues of CN¥6.4b in 2022. If met, this would reflect a huge 30% improvement in sales compared to the last 12 months. Statutory earnings per share are presumed to swell 19% to CN¥0.46. Prior to this update, the analysts had been forecasting revenues of CN¥8.0b and earnings per share (EPS) of CN¥0.62 in 2022. Indeed, we can see that the analysts are a lot more bearish about Jiangsu Linyang Energy's prospects, administering a sizeable cut to revenue estimates and slashing their EPS estimates to boot.

Check out our latest analysis for Jiangsu Linyang Energy

What's most unexpected is that the consensus price target rose 12% to CN¥9.63, strongly implying the downgrade to forecasts is not expected to be more than a temporary blip. 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. The most optimistic Jiangsu Linyang Energy analyst has a price target of CN¥10.53 per share, while the most pessimistic values it at CN¥8.07. With such a narrow range of valuations, analysts apparently share similar views on what they think the business is worth.

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 Jiangsu Linyang Energy's rate of growth is expected to accelerate meaningfully, with the forecast 30% annualised revenue growth to the end of 2022 noticeably faster than its historical growth of 11% p.a. over the past five years. Other similar companies in the industry (with analyst coverage) are also forecast to grow their revenue at 25% per year. Jiangsu Linyang Energy is expected to grow at about the same rate as its industry, so it's not clear that we can draw any conclusions from its growth relative to competitors.

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. There was also a drop in their revenue estimates, although as we saw earlier, forecast growth is only expected to be about the same as the wider market. The rising price target is a puzzle, but still - with a serious cut to this year's outlook, we wouldn't be surprised if investors were a bit wary of Jiangsu Linyang Energy.

Uncomfortably, our automated valuation tool also suggests that Jiangsu Linyang Energy stock could be overvalued following the downgrade. Shareholders could be left disappointed if these estimates play out. Find out why, and see how we estimate the valuation 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.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.