The latest analyst coverage could presage a bad day for STRATA Skin Sciences, Inc. (NASDAQ:SSKN), with the analysts making across-the-board cuts to their statutory estimates that might leave shareholders a little shell-shocked. Both revenue and earnings per share (EPS) estimates were cut sharply as analysts factored in the latest outlook for the business, concluding that they were too optimistic previously.
After the downgrade, the consensus from STRATA Skin Sciences’s three analysts is for revenues of US$28m in 2020, which would reflect a not inconsiderable 13% decline in sales compared to the last year of performance. Per-share losses are expected to see a sharp uptick, reaching US$0.12. Yet before this consensus update, the analysts had been forecasting revenues of US$34m and losses of US$0.083 per share in 2020. Ergo, there’s been a clear change in sentiment, with the analysts administering a notable cut to this year’s revenue estimates, while at the same time increasing their loss per share forecasts.
There was no major change to the consensus price target of US$5.63, signalling that the business is performing roughly in line with expectations, despite lower earnings per share forecasts. 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. The most optimistic STRATA Skin Sciences analyst has a price target of US$6.00 per share, while the most pessimistic values it at US$5.25. With such a narrow range of valuations, analysts apparently share similar views on what they think the business 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 STRATA Skin Sciences’s past performance and to peers in the same industry. These estimates imply that sales are expected to slow, with a forecast revenue decline of 13%, a significant reduction from annual growth of 22% over the last five years. By contrast, our data suggests that other companies (with analyst coverage) in the same industry are forecast to see their revenue grow 7.7% annually for the foreseeable future. It’s pretty clear that STRATA Skin Sciences’s revenues are expected to perform substantially worse 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 STRATA Skin Sciences. Regrettably, they also downgraded their revenue estimates, and the latest forecasts imply the business will grow sales slower than the wider market. We’re also surprised to see that the price target went unchanged. Still, deteriorating business conditions (assuming accurate forecasts!) can be a leading indicator for the stock price, so we wouldn’t blame investors for being more cautious on STRATA Skin Sciences after the downgrade.
Even so, the longer term trajectory of the business is much more important for the value creation of shareholders. We have estimates – from multiple STRATA Skin Sciences analysts – going out to 2022, 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.
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