The latest analyst coverage could presage a bad day for FriendTimes Inc. (HKG:6820), with the analysts making across-the-board cuts to their statutory estimates that might leave shareholders a little shell-shocked. Both revenue and earnings per share (EPS) estimates were cut sharply as the analysts factored in the latest outlook for the business, concluding that they were too optimistic previously.

After this downgrade, FriendTimes' four analysts are now forecasting revenues of CN¥2.0b in 2022. This would be a sizeable 25% improvement in sales compared to the last 12 months. Per-share earnings are expected to expand 16% to CN¥0.15. Before this latest update, the analysts had been forecasting revenues of CN¥2.3b and earnings per share (EPS) of CN¥0.24 in 2022. Indeed, we can see that the analysts are a lot more bearish about FriendTimes' prospects, administering a measurable cut to revenue estimates and slashing their EPS estimates to boot.

See our latest analysis for FriendTimes

It'll come as no surprise then, to learn that the analysts have cut their price target 9.0% to HK$2.43. 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 FriendTimes analyst has a price target of HK$3.60 per share, while the most pessimistic values it at HK$1.50. Note the wide gap in analyst price targets? This implies to us that there is a fairly broad range of possible scenarios for the underlying business.

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. It's clear from the latest estimates that FriendTimes' rate of growth is expected to accelerate meaningfully, with the forecast 25% annualised revenue growth to the end of 2022 noticeably faster than its historical growth of 17% p.a. over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to grow their revenue at 18% per year. Factoring in the forecast acceleration in revenue, it's pretty clear that FriendTimes is expected to grow much faster than its 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. Unfortunately, analysts also downgraded their revenue estimates, although our data indicates revenues are expected to perform better than the wider market. After such a stark change in sentiment from analysts, we'd understand if readers now felt a bit wary of FriendTimes.

Still, the long-term prospects of the business are much more relevant than next year's earnings. We have estimates - from multiple FriendTimes analysts - going out to 2024, and you can see them 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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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.