Stock Analysis

Time To Worry? Analysts Are Downgrading Their Atomos Limited (ASX:AMS) Outlook

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One thing we could say about the analysts on Atomos Limited (ASX:AMS) - they aren't optimistic, having just made a major negative revision to their near-term (statutory) forecasts for the organization. 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 Atomos' five analysts is for revenues of AU$84m in 2022, which would reflect a noticeable 2.9% decline in sales compared to the last year of performance. Statutory earnings per share are supposed to tumble 92% to AU$0.001 in the same period. Previously, the analysts had been modelling revenues of AU$96m and earnings per share (EPS) of AU$0.028 in 2022. Indeed, we can see that the analysts are a lot more bearish about Atomos' prospects, administering a measurable cut to revenue estimates and slashing their EPS estimates to boot.

View our latest analysis for Atomos

ASX:AMS Earnings and Revenue Growth May 11th 2022

It'll come as no surprise then, to learn that the analysts have cut their price target 35% to AU$1.13. That's not the only conclusion we can draw from this data however, as some investors also like to consider the spread in estimates when evaluating analyst price targets. The most optimistic Atomos analyst has a price target of AU$1.46 per share, while the most pessimistic values it at AU$0.73. This is a fairly broad spread of estimates, suggesting that the analysts are forecasting a wide range of possible outcomes for the business.

These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the Atomos' past performance and to peers in the same industry. We would highlight that sales are expected to reverse, with a forecast 5.7% annualised revenue decline to the end of 2022. That is a notable change from historical growth of 19% over the last three years. By contrast, our data suggests that other companies (with analyst coverage) in the same industry are forecast to see their revenue grow 8.1% annually for the foreseeable future. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - Atomos is expected to lag the wider industry.

The Bottom Line

The most important thing to take away is that analysts cut their earnings per share estimates, expecting a clear decline in business conditions. Regrettably, they also downgraded their revenue estimates, and the latest forecasts imply the business will grow sales slower than the wider market. After such a stark change in sentiment from analysts, we'd understand if readers now felt a bit wary of Atomos.

After a downgrade like this, it's pretty clear that previous forecasts were too optimistic. What's more, we've spotted several possible issues with Atomos' business, like concerns around earnings quality. Learn more, and discover the 2 other risks we've identified, for free on our platform here.

Another way to search for interesting companies that could be reaching an inflection point is to track whether management are buying or selling, with our free list of growing companies that insiders are buying.

Valuation is complex, but we're helping make it simple.

Find out whether Atomos is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.