Market forces rained on the parade of Carbon Revolution Limited (ASX:CBR) shareholders today, when the covering analyst downgraded their forecasts for this year. This report focused on revenue estimates, and it looks as though the consensus view of the business has become substantially more conservative.
Following the latest downgrade, the current consensus, from the sole analyst covering Carbon Revolution, is for revenues of AU$34m in 2021, which would reflect a noticeable 5.6% reduction in Carbon Revolution's sales over the past 12 months. Losses are predicted to fall substantially, shrinking 33% to AU$0.14. Yet prior to the latest estimates, the analyst had been forecasting revenues of AU$46m and losses of AU$0.067 per share in 2021. So there's been quite a change-up of views after the recent consensus updates, with the analyst making a serious cut to their revenue forecasts while also expecting losses per share to increase.
The consensus price target fell 49% to AU$1.78, implicitly signalling that lower earnings per share are a leading indicator for Carbon Revolution's valuation.
Of course, another way to look at these forecasts is to place them into context against the industry itself. We would highlight that sales are expected to reverse, with a forecast 11% annualised revenue decline to the end of 2021. That is a notable change from historical growth of 23% over the last year. By contrast, our data suggests that other companies (with analyst coverage) in the same industry are forecast to see their revenue grow 10% annually for the foreseeable future. It's pretty clear that Carbon Revolution'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 Carbon Revolution. Unfortunately the analyst also downgraded their revenue estimates, and industry data suggests that Carbon Revolution's revenues are expected to grow slower than the wider market. The consensus price target fell measurably, with the analyst seemingly not reassured by recent business developments, leading to a lower estimate of Carbon Revolution'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 Carbon Revolution after today.
That said, the analyst might have good reason to be negative on Carbon Revolution, given a short cash runway. For more information, you can click here to discover this and the 3 other flags we've identified.
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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