The analysts covering Morimatsu International Holdings Company Limited (HKG:2155) delivered a dose of negativity to shareholders today, by making a substantial revision to their statutory forecasts for this year. There was a fairly draconian cut to their revenue estimates, perhaps an implicit admission that previous forecasts were much too optimistic. Shares are up 4.6% to HK$4.80 in the past week. It will be interesting to see if this downgrade motivates investors to start selling their holdings.

Following the downgrade, the current consensus from Morimatsu International Holdings' three analysts is for revenues of CN¥8.5b in 2024 which - if met - would reflect a decent 16% increase on its sales over the past 12 months. Per-share earnings are expected to grow 16% to CN¥0.82. Prior to this update, the analysts had been forecasting revenues of CN¥10b and earnings per share (EPS) of CN¥0.89 in 2024. It looks like analyst sentiment has fallen somewhat in this update, with a substantial drop in revenue estimates and a small dip in earnings per share numbers as well.

The consensus price target fell 7.0% to HK$9.55, with the weaker earnings outlook clearly leading analyst valuation estimates.

These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the Morimatsu International Holdings' past performance and to peers in the same industry. We would highlight that Morimatsu International Holdings' revenue growth is expected to slow, with the forecast 16% annualised growth rate until the end of 2024 being well below the historical 26% 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 11% annually. Even after the forecast slowdown in growth, it seems obvious that Morimatsu International Holdings is also expected to grow faster than 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. While analysts did downgrade their revenue estimates, these forecasts still imply revenues will perform better than the wider market. The consensus price target fell measurably, with analysts seemingly not reassured by recent business developments, leading to a lower estimate of Morimatsu International Holdings' future valuation. Overall, given the drastic downgrade to this year's forecasts, we'd be feeling a little more wary of Morimatsu International Holdings going forwards.

Unfortunately, by using these new estimates as a starting point, we've run a discounted cash flow calculation (DCF) on Morimatsu International Holdings that suggests the company could be somewhat overvalued. Find out why, and see how we estimate the valuation 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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