Market forces rained on the parade of EnWave Corporation (CVE:ENW) shareholders today, when the analysts downgraded their forecasts for this year. There was a fairly draconian cut to their revenue estimates, perhaps an implicit admission that previous forecasts were much too optimistic.
Following the downgrade, the most recent consensus for EnWave from its three analysts is for revenues of CA$40m in 2021 which, if met, would be a huge 25% increase on its sales over the past 12 months. Prior to this update, the analysts had been forecasting revenues of CA$46m and earnings per share (EPS) of CA$0.02 in 2021. It looks like analyst sentiment has declined substantially, with a measurable cut to revenue estimates and a earnings per share numbers as well.
Notably, the analysts have cut their price target 5.9% to CA$1.58, suggesting concerns around EnWave's 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. There are some variant perceptions on EnWave, with the most bullish analyst valuing it at CA$2.15 and the most bearish at CA$1.10 per share. This is a fairly broad spread of estimates, suggesting that the analysts are forecasting a wide range of possible outcomes for the business.
Looking at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up against both past performance and industry growth estimates. The analysts are definitely expecting EnWave's growth to accelerate, with the forecast 34% annualised growth to the end of 2021 ranking favourably alongside historical growth of 27% per annum over the past five years. Compare this with other companies in the same industry, which are forecast to grow their revenue 22% annually. It seems obvious that, while the growth outlook is brighter than the recent past, the analysts also expect EnWave to grow faster than the wider industry.
The Bottom Line
The biggest issue in the new estimates is that analysts have reduced their earnings per share estimates, suggesting business headwinds lay ahead for EnWave. 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 EnWave's future valuation. Overall, given the drastic downgrade to this year's forecasts, we'd be feeling a little more wary of EnWave going forwards.
Still, the long-term prospects of the business are much more relevant than next year's earnings. We have estimates - from multiple EnWave 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. 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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