Pony Testing Co., Ltd. (SZSE:300887) shareholders will have a reason to smile today, with the analysts making substantial upgrades to this year's forecasts. The analysts greatly increased their revenue estimates, suggesting a stark improvement in business fundamentals.

After the upgrade, the five analysts covering Pony Testing are now predicting revenues of CN¥3.3b in 2022. If met, this would reflect a notable 13% improvement in sales compared to the last 12 months. Statutory earnings per share are presumed to rise 9.9% to CN¥1.09. Before this latest update, the analysts had been forecasting revenues of CN¥3.0b and earnings per share (EPS) of CN¥0.99 in 2022. There has definitely been an improvement in perception recently, with the analysts substantially increasing both their earnings and revenue estimates.

View our latest analysis for Pony Testing

Although the analysts have upgraded their earnings estimates, there was no change to the consensus price target of CN¥52.50, suggesting that the forecast performance does not have a long term impact on the company'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. There are some variant perceptions on Pony Testing, with the most bullish analyst valuing it at CN¥67.78 and the most bearish at CN¥44.28 per share. 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.

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. We would highlight that Pony Testing's revenue growth is expected to slow, with the forecast 27% annualised growth rate until the end of 2022 being well below the historical 82% growth over the last year. Compare this to the 44 other companies in this industry with analyst coverage, which are forecast to grow their revenue at 22% per year. Factoring in the forecast slowdown in growth, it looks like Pony Testing is forecast to grow at about the same rate as the wider industry.

The Bottom Line

The most important thing to take away from this upgrade is that analysts upgraded their earnings per share estimates for this year, expecting improving business conditions. There was also an upgrade to revenue estimates, although as we saw earlier, forecast growth is only expected to be about the same as the wider market. Some investors might be disappointed to see that the price target is unchanged, but we feel that improving fundamentals are usually a positive - assuming these forecasts are met! So Pony Testing could be a good candidate for more research.

These earnings upgrades look like a sterling endorsement, but before diving in - you should know that we've spotted 3 potential risks with Pony Testing, including concerns around earnings quality. For more information, you can click through to our platform to learn more about this and the 2 other risks we've identified .

Another way to search for interesting companies that could be reaching an inflection point is to track whether management are buying or selling, with our free list of growing companies 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.