Today is shaping up negative for NagaCorp Ltd. (HKG:3918) 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. At HK$4.78, shares are up 5.3% in the past 7 days. We'd be curious to see if the downgrade is enough to reverse investor sentiment on the business.

Following the downgrade, the latest consensus from NagaCorp's five analysts is for revenues of US$625m in 2023, which would reflect a sizeable 36% improvement in sales compared to the last 12 months. Per-share earnings are expected to leap 38% to US$0.043. Prior to this update, the analysts had been forecasting revenues of US$703m and earnings per share (EPS) of US$0.056 in 2023. Indeed, we can see that the analysts are a lot more bearish about NagaCorp's prospects, administering a measurable cut to revenue estimates and slashing their EPS estimates to boot.

Check out our latest analysis for NagaCorp

The consensus price target fell 15% to US$0.85, with the weaker earnings outlook clearly leading analyst valuation estimates. The consensus price target is just an average of individual analyst targets, so - it could be handy to see how wide the range of underlying estimates is. The most optimistic NagaCorp analyst has a price target of US$8.78 per share, while the most pessimistic values it at US$5.07. We would probably assign less value to the forecasts in this situation, because such a wide range of estimates could imply that the future of this business is difficult to value accurately. With this in mind, we wouldn't rely too heavily on the consensus price target, as it is just an average and analysts clearly have some deeply divergent views on the business.

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. For example, we noticed that NagaCorp's rate of growth is expected to accelerate meaningfully, with revenues forecast to exhibit 86% growth to the end of 2023 on an annualised basis. That is well above its historical decline of 33% a year over the past five years. Compare this against analyst estimates for the broader industry, which suggest that (in aggregate) industry revenues are expected to grow 20% annually. Not only are NagaCorp's revenues expected to improve, it seems that the analysts are also expecting it to grow faster than 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 NagaCorp. While analysts did downgrade their revenue estimates, these forecasts still imply revenues will 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 NagaCorp.

Even so, the longer term trajectory of the business is much more important for the value creation of shareholders. We have estimates - from multiple NagaCorp analysts - going out to 2025, 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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