Market forces rained on the parade of Yatsen Holding Limited (NYSE:YSG) shareholders today, when the analysts downgraded their forecasts for next year. There was a fairly draconian cut to their revenue estimates, perhaps an implicit admission that previous forecasts were much too optimistic. Surprisingly the share price has been buoyant, rising 13% to US$3.06 in the past 7 days. It will be interesting to see if the downgrade has an impact on buying demand for the company's shares.
After the downgrade, the six analysts covering Yatsen Holding are now predicting revenues of CN¥7.8b in 2022. If met, this would reflect a huge 24% improvement in sales compared to the last 12 months. Losses are predicted to fall substantially, shrinking 79% to CN¥0.89. Yet prior to the latest estimates, the analysts had been forecasting revenues of CN¥9.0b and losses of CN¥0.86 per share in 2022. Ergo, there's been a clear change in sentiment, with the analysts administering a notable cut to next year's revenue estimates, while at the same time increasing their loss per share forecasts.
The consensus price target was broadly unchanged at CN¥34.25, perhaps implicitly signalling that the weaker earnings outlook is not expected to have a long-term impact on the valuation. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company's valuation. The most optimistic Yatsen Holding analyst has a price target of CN¥10.34 per share, while the most pessimistic values it at CN¥2.90. Still, with such a tight range of estimates, it suggests the analysts have a pretty good idea of what they think the company is worth.
These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the Yatsen Holding's past performance and to peers in the same industry. It's pretty clear that there is an expectation that Yatsen Holding's revenue growth will slow down substantially, with revenues to the end of 2022 expected to display 19% growth on an annualised basis. This is compared to a historical growth rate of 49% over the past three years. Juxtapose this against the other companies in the industry with analyst coverage, which are forecast to grow their revenues (in aggregate) 9.8% per year. Even after the forecast slowdown in growth, it seems obvious that Yatsen Holding is also expected to grow faster than the wider industry.
The Bottom Line
The most important thing to note from this downgrade is that the consensus increased its forecast losses next year, suggesting all may not be well at Yatsen Holding. Unfortunately, analysts also downgraded their revenue estimates, although our data indicates revenues are expected to perform better than the wider market. Overall, given the drastic downgrade to next year's forecasts, we'd be feeling a little more wary of Yatsen Holding going forwards.
Still, the long-term prospects of the business are much more relevant than next year's earnings. We have estimates - from multiple Yatsen Holding analysts - going out to 2023, 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.
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.
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