The latest analyst coverage could presage a bad day for Yunnan Energy New Material Co., Ltd. (SZSE:002812), with the analysts making across-the-board cuts to their statutory estimates that might leave shareholders a little shell-shocked. Both revenue and earnings per share (EPS) estimates were cut sharply as analysts factored in the latest outlook for the business, concluding that they were too optimistic previously. Shares are up 6.0% to CN¥26.91 in the past week. It will be interesting to see if this downgrade motivates investors to start selling their holdings.

Following this downgrade, Yunnan Energy New Material's 16 analysts are forecasting 2024 revenues to be CN¥11b, approximately in line with the last 12 months. Statutory earnings per share are supposed to plummet 45% to CN¥0.81 in the same period. Previously, the analysts had been modelling revenues of CN¥13b and earnings per share (EPS) of CN¥1.81 in 2024. Indeed, we can see that the analysts are a lot more bearish about Yunnan Energy New Material'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¥40.50, suggesting the downgrades are not expected to have a long-term impact on Yunnan Energy New Material's valuation.

Taking a look at the bigger picture now, one of the ways we can understand these forecasts is to see how they compare to both past performance and industry growth estimates. These estimates imply that sales are expected to slow, with a forecast annualised revenue decline of 1.2% by the end of 2024. This indicates a significant reduction from annual growth of 30% over the last five years. Compare this with our data, which suggests that other companies in the same industry are, in aggregate, expected to see their revenue grow 16% per year. It's pretty clear that Yunnan Energy New Material'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 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. 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 Yunnan Energy New Material after the downgrade.

After a downgrade like this, it's pretty clear that previous forecasts were too optimistic. What's more, we've spotted several possible issues with Yunnan Energy New Material's business, like its declining profit margins. For more information, you can click here to discover this and the 1 other flag we've identified.

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 with high insider ownership.

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