One thing we could say about the analysts on Skyworth Group Limited (HKG:751) - they aren't optimistic, having just made a major negative revision to their near-term (statutory) forecasts for the organization. There was a fairly draconian cut to their revenue estimates, perhaps an implicit admission that previous forecasts were much too optimistic. Shares are up 4.9% to HK$3.88 in the past week. We'd be curious to see if the downgrade is enough to reverse investor sentiment on the business.

Following the downgrade, the consensus from two analysts covering Skyworth Group is for revenues of CN¥50b in 2022, implying a measurable 4.3% decline in sales compared to the last 12 months. Statutory earnings per share are anticipated to sink 12% to CN¥0.53 in the same period. Prior to this update, the analysts had been forecasting revenues of CN¥56b and earnings per share (EPS) of CN¥0.57 in 2022. It looks like analyst sentiment has fallen somewhat in this update, with a measurable cut to revenue estimates and a small dip in earnings per share numbers as well.

View our latest analysis for Skyworth Group

It'll come as no surprise then, to learn that the analysts have cut their price target 17% to HK$4.19. That's not the only conclusion we can draw from this data however, as some investors also like to consider the spread in estimates when evaluating analyst price targets. The most optimistic Skyworth Group analyst has a price target of HK$5.17 per share, while the most pessimistic values it at HK$3.20. Analysts definitely have varying views on the business, but the spread of estimates is not wide enough in our view to suggest that extreme outcomes could await Skyworth Group shareholders.

One way to get more context on these forecasts is to look at how they compare to both past performance, and how other companies in the same industry are performing. These estimates imply that sales are expected to slow, with a forecast annualised revenue decline of 4.3% by the end of 2022. This indicates a significant reduction from annual growth of 6.2% 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 13% per year. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - Skyworth Group is expected to lag the wider industry.

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. Regrettably, they also downgraded their revenue estimates, and the latest forecasts imply the business will grow sales slower than the wider market. Furthermore, there was a cut to the price target, suggesting that the latest news has led to more pessimism about the intrinsic value of the business. Often, one downgrade can set off a daisy-chain of cuts, especially if an industry is in decline. So we wouldn't be surprised if the market became a lot more cautious on Skyworth Group after today.

Still, the long-term prospects of the business are much more relevant than next year's earnings. At least one analyst has provided forecasts out to 2023, which can be seen for free on our platform here.

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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