The analysts covering Sinosoft Co.,Ltd (SHSE:603927) delivered a dose of negativity to shareholders today, by making a substantial revision to their statutory forecasts for this year. 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. Shares are up 8.5% to CN¥28.48 in the past week. Investors could be forgiven for changing their mind on the business following the downgrade; but it's not clear if the revised forecasts will lead to selling activity.
After the downgrade, the seven analysts covering SinosoftLtd are now predicting revenues of CN¥7.1b in 2024. If met, this would reflect a decent 9.1% improvement in sales compared to the last 12 months. Per-share earnings are expected to accumulate 9.3% to CN¥1.21. Previously, the analysts had been modelling revenues of CN¥8.0b and earnings per share (EPS) of CN¥1.55 in 2024. Indeed, we can see that the analysts are a lot more bearish about SinosoftLtd's prospects, administering a substantial drop in revenue estimates and slashing their EPS estimates to boot.
Analysts made no major changes to their price target of CN¥34.82, suggesting the downgrades are not expected to have a long-term impact on SinosoftLtd's valuation.
Of course, another way to look at these forecasts is to place them into context against the industry itself. The analysts are definitely expecting SinosoftLtd's growth to accelerate, with the forecast 9.1% annualised growth to the end of 2024 ranking favourably alongside historical growth of 6.4% per annum over the past five years. Compare this with other companies in the same industry, which are forecast to see revenue growth of 21% annually. It seems obvious that, while the future growth outlook is brighter than the recent past, SinosoftLtd is expected to grow slower 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. Regrettably, they also downgraded their revenue estimates, and the latest forecasts imply the business will grow sales slower than the wider market. The lack of change in the price target is puzzling in light of the downgrade but, with a serious decline expected this year, we wouldn't be surprised if investors were a bit wary of SinosoftLtd.
Even so, the longer term trajectory of the business is much more important for the value creation of shareholders. We have estimates - from multiple SinosoftLtd analysts - going out to 2026, 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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