Last week saw the newest first-quarter earnings release from Inovalon Holdings, Inc. (NASDAQ:INOV), an important milestone in the company’s journey to build a stronger business. The result was fairly weak overall, with revenues of US$154m being 3.0% less than what the analysts had been modelling. 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. So we collected the latest post-earnings statutory consensus estimates to see what could be in store for next year.
Taking into account the latest results, the consensus forecast from Inovalon Holdings’ seven analysts is for revenues of US$680.5m in 2020, which would reflect a satisfactory 4.5% improvement in sales compared to the last 12 months. Statutory earnings per share are predicted to leap 49% to US$0.14. In the lead-up to this report, the analysts had been modelling revenues of US$701.2m and earnings per share (EPS) of US$0.17 in 2020. From this we can that sentiment has definitely become more bearish after the latest results, leading to lower revenue forecasts and a substantial drop in earnings per share estimates.
Despite the cuts to forecast earnings, there was no real change to the US$19.50 price target, showing that the analysts don’t think the changes have a meaningful impact on its intrinsic value. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. Currently, the most bullish analyst values Inovalon Holdings at US$23.00 per share, while the most bearish prices it at US$13.00. This shows there is still a bit of diversity in estimates, but analysts don’t appear to be totally split on the stock as though it might be a success or failure situation.
These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the Inovalon Holdings’ past performance and to peers in the same industry. It’s pretty clear that there is an expectation that Inovalon Holdings’ revenue growth will slow down substantially, with revenues next year expected to grow 4.5%, compared to a historical growth rate of 10% over the past five years. Compare this against other companies (with analyst forecasts) in the industry, which are in aggregate expected to see revenue growth of 15% next year. Factoring in the forecast slowdown in growth, it seems obvious that Inovalon Holdings is also expected to grow slower than other industry participants.
The Bottom Line
The most important thing to take away is that the analysts downgraded their earnings per share estimates, showing that there has been a clear decline in sentiment following these results. Unfortunately, they also downgraded their revenue estimates, and our data indicates revenues are expected to perform worse than the wider industry. Even so, earnings per share are more important to the intrinsic value of the business. The consensus price target held steady at US$19.50, with the latest estimates not enough to have an impact on their price targets.
Keeping that in mind, we still think that the longer term trajectory of the business is much more important for investors to consider. At Simply Wall St, we have a full range of analyst estimates for Inovalon Holdings going out to 2023, and you can see them free on our platform here..
It is also worth noting that we have found 2 warning signs for Inovalon Holdings (1 makes us a bit uncomfortable!) that you need to take into consideration.
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