Today is shaping up negative for PolyNovo Limited (ASX:PNV) shareholders, with the analysts delivering a substantial negative revision to this year's forecasts. Revenue estimates were cut sharply as the analysts signalled a weaker outlook - perhaps a sign that investors should temper their expectations as well.

Following the downgrade, the latest consensus from PolyNovo's seven analysts is for revenues of AU$31m in 2021, which would reflect a major 26% improvement in sales compared to the last 12 months. Losses are predicted to fall substantially, shrinking 24% to AU$0.0061. Yet prior to the latest estimates, the analysts had been forecasting revenues of AU$36m and losses of AU$0.0057 per share in 2021. So there's been quite a change-up of views after the recent consensus updates, with the analysts making a serious cut to their revenue forecasts while also expecting losses per share to increase.

See our latest analysis for PolyNovo

The consensus price target fell 9.2% to AU$2.65, implicitly signalling that lower earnings per share are a leading indicator for PolyNovo's valuation. 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 PolyNovo analyst has a price target of AU$3.30 per share, while the most pessimistic values it at AU$1.74. Analysts definitely have varying views on the business, but the spread of estimates is not wide enough in our view to suggest that extreme outcomes could await PolyNovo shareholders.

Of course, another way to look at these forecasts is to place them into context against the industry itself. It's clear from the latest estimates that PolyNovo's rate of growth is expected to accelerate meaningfully, with the forecast 59% annualised revenue growth to the end of 2021 noticeably faster than its historical growth of 48% p.a. over the past five years. Compare this with other companies in the same industry, which are forecast to grow their revenue 15% annually. It seems obvious that, while the growth outlook is brighter than the recent past, the analysts also expect PolyNovo 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 this year, suggesting all may not be well at PolyNovo. Unfortunately, analysts also downgraded their revenue estimates, although our data indicates revenues are expected to perform better than the wider market. The consensus price target fell measurably, with analysts seemingly not reassured by recent business developments, leading to a lower estimate of PolyNovo's future valuation. Often, one downgrade can set off a daisy-chain of cuts, especially if an industry is in decline. So we wouldn't be surprised if the market became a lot more cautious on PolyNovo after today.

Still, the long-term prospects of the business are much more relevant than next year's earnings. At Simply Wall St, we have a full range of analyst estimates for PolyNovo going out to 2025, 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. 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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