The analysts covering Qudian Inc. (NYSE:QD) delivered a dose of negativity to shareholders today, by making a substantial revision to their statutory forecasts for this year. Revenue and earnings per share (EPS) forecasts were both revised downwards, with analysts seeing grey clouds on the horizon.
Following the downgrade, the consensus from five analysts covering Qudian is for revenues of CN¥3.0b in 2020, implying a painful 61% decline in sales compared to the last 12 months. Following this this downgrade, earnings are now expected to tip over into loss-making territory, with the analysts forecasting losses of CN¥5.57 per share in 2020. Yet prior to the latest estimates, the analysts had been forecasting revenues of CN¥4.6b and losses of CN¥2.94 per share in 2020. Ergo, there's been a clear change in sentiment, with the analysts administering a notable cut to this year's revenue estimates, while at the same time increasing their loss per share forecasts.
The consensus price target was broadly unchanged at US$1.88, perhaps implicitly signalling that the weaker earnings outlook is not expected to have a long-term impact on the valuation. There's another way to think about price targets though, and that's to look at the range of price targets put forward by analysts, because a wide range of estimates could suggest a diverse view on possible outcomes for the business. Currently, the most bullish analyst values Qudian at US$3.30 per share, while the most bearish prices it at US$0.70. 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.
Of course, another way to look at these forecasts is to place them into context against the industry itself. These estimates imply that sales are expected to slow, with a forecast revenue decline of 61%, a significant reduction from annual growth of 33% over the last three years. Compare this with our data, which suggests that other companies in the same industry are, in aggregate, expected to see their revenue grow 7.0% next year. It's pretty clear that Qudian's revenues are expected to perform substantially worse than the wider industry.
The Bottom Line
The most important thing to take away is that analysts increased their loss per share estimates for this year. Unfortunately analysts also downgraded their revenue estimates, and industry data suggests that Qudian's revenues are expected to grow 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 Qudian after the downgrade.
Still, the long-term prospects of the business are much more relevant than next year's earnings. We have estimates - from multiple Qudian analysts - going out to 2022, and you can see them free on our platform here.
Of course, seeing company management invest large sums of money in a stock can be just as useful as knowing whether analysts are downgrading their estimates. So you may also wish to search this free list of stocks that insiders are buying.
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