Today is shaping up negative for Yongxing Special Materials Technology Co.,Ltd (SZSE:002756) shareholders, with the analysts delivering a substantial negative revision to this year's forecasts. Revenue and earnings per share (EPS) forecasts were both revised downwards, with the analysts seeing grey clouds on the horizon. The stock price has risen 5.1% to CN¥47.58 over the past week. We'd be curious to see if the downgrade is enough to reverse investor sentiment on the business.

After the downgrade, the consensus from Yongxing Special Materials TechnologyLtd's seven analysts is for revenues of CN¥9.8b in 2024, which would reflect a not inconsiderable 12% decline in sales compared to the last year of performance. Statutory earnings per share are anticipated to nosedive 34% to CN¥3.62 in the same period. Prior to this update, the analysts had been forecasting revenues of CN¥12b and earnings per share (EPS) of CN¥5.78 in 2024. It looks like analyst sentiment has declined substantially, with a substantial drop in revenue estimates and a pretty serious decline to earnings per share numbers as well.

Despite the cuts to forecast earnings, there was no real change to the CN¥50.17 price target, showing that the analysts don't think the changes have a meaningful impact on its intrinsic value.

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. We would highlight that sales are expected to reverse, with a forecast 16% annualised revenue decline to the end of 2024. That is a notable change from historical growth of 28% 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 11% per year. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - Yongxing Special Materials TechnologyLtd is expected to lag the wider industry.

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 Yongxing Special Materials TechnologyLtd. Regrettably, they also downgraded their revenue estimates, and the latest forecasts imply the business will grow sales slower than the wider market. We're also surprised to see that the price target went unchanged. Still, deteriorating business conditions (assuming accurate forecasts!) can be a leading indicator for the stock price, so we wouldn't blame investors for being more cautious on Yongxing Special Materials TechnologyLtd after the downgrade.

There might be good reason for analyst bearishness towards Yongxing Special Materials TechnologyLtd, like concerns around earnings quality. Learn more, and discover the 2 other risks we've identified, for free on our platform here.

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