Today is shaping up negative for SG Micro Corp (SZSE:300661) 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 analysts seeing grey clouds on the horizon. Surprisingly the share price has been buoyant, rising 11% to CN¥83.42 in the past 7 days. Whether the downgrade will have a negative impact on demand for shares is yet to be seen.
Following the downgrade, the current consensus from SG Micro's 14 analysts is for revenues of CN¥2.8b in 2023 which - if met - would reflect a satisfactory 4.1% increase on its sales over the past 12 months. Statutory earnings per share are supposed to reduce 3.9% to CN¥0.87 in the same period. Before this latest update, the analysts had been forecasting revenues of CN¥3.2b and earnings per share (EPS) of CN¥1.48 in 2023. It looks like analyst sentiment has declined substantially, with a substantial drop in revenue estimates and a large cut to earnings per share numbers as well.
See our latest analysis for SG Micro
Analysts made no major changes to their price target of CN¥121, suggesting the downgrades are not expected to have a long-term impact on SG Micro's valuation.
Of course, another way to look at these forecasts is to place them into context against the industry itself. We would highlight that SG Micro's revenue growth is expected to slow, with the forecast 8.3% annualised growth rate until the end of 2023 being well below the historical 38% p.a. growth over the last five years. By way of comparison, the other companies in this industry with analyst coverage are forecast to grow their revenue at 25% per year. So it's pretty clear that, while revenue growth is expected to slow down, the wider industry is also expected to grow faster than SG Micro.
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 SG Micro. 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 SG Micro after the downgrade.
There might be good reason for analyst bearishness towards SG Micro, like concerns around earnings quality. Learn more, and discover the 1 other risk we've identified, for free on our platform here.
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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.