Shareholders of G5 Entertainment AB (publ) (STO:G5EN) will be pleased this week, given that the stock price is up 12% to kr151 following its latest quarterly results. It looks to have been a decent result overall - while revenue fell marginally short of analyst estimates at kr312m, statutory earnings beat expectations by a notable 128%, coming in at kr3.72 per share. Earnings are an important time for investors, as they can track a company's performance, look at what the analysts are forecasting for next year, and see if there's been a change in sentiment towards the company. Readers will be glad to know we've aggregated the latest statutory forecasts to see whether the analysts have changed their mind on G5 Entertainment after the latest results.
Following the latest results, G5 Entertainment's three analysts are now forecasting revenues of kr1.29b in 2020. This would be a reasonable 4.2% improvement in sales compared to the last 12 months. Statutory earnings per share are predicted to shoot up 101% to kr9.52. In the lead-up to this report, the analysts had been modelling revenues of kr1.38b and earnings per share (EPS) of kr7.65 in 2020. Although the analysts have lowered their sales forecasts, they've also made a great increase in their earnings per share estimates, which implies there's been something of an uptick in sentiment following the latest results.
The average price target rose 5.7% to kr140, with the analysts signalling that the improved earnings outlook is the key driver of value for shareholders - enough to offset the reduction in revenue estimates. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. The most optimistic G5 Entertainment analyst has a price target of kr160 per share, while the most pessimistic values it at kr120. The narrow spread of estimates could suggest that the business' future is relatively easy to value, or thatthe analysts have a strong view on its prospects.
One way to get more context on these forecasts is to look at how they compare to both past performance, and how other companies in the same industry are performing. It's pretty clear that there is an expectation that G5 Entertainment's revenue growth will slow down substantially, with revenues next year expected to grow 4.2%, compared to a historical growth rate of 29% over the past five years. By way of comparison, the other companies in this industry with analyst coverage are forecast to grow their revenue at 16% per year. Factoring in the forecast slowdown in growth, it seems obvious that G5 Entertainment is also expected to grow slower than other industry participants.
The Bottom Line
The most important thing here is that the analysts upgraded their earnings per share estimates, suggesting that there has been a clear increase in optimism towards G5 Entertainment following these results. On the negative side, they also downgraded their revenue estimates, and forecasts imply revenues will perform worse than the wider industry. Even so, earnings are more important to the intrinsic value of the business. We note an upgrade to the price target, suggesting that the analysts believes the intrinsic value of the business is likely to improve over time.
With that in mind, we wouldn't be too quick to come to a conclusion on G5 Entertainment. Long-term earnings power is much more important than next year's profits. We have forecasts for G5 Entertainment going out to 2023, and you can see them free on our platform here.
And what about risks? Every company has them, and we've spotted 2 warning signs for G5 Entertainment you should know about.
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