Bearish: Analysts Just Cut Their Ardent Leisure Group Limited (ASX:ALG) Revenue and EPS estimates

Market forces rained on the parade of Ardent Leisure Group Limited (ASX:ALG) shareholders today, when the analysts downgraded their forecasts for this year. Both revenue and earnings per share (EPS) estimates were cut sharply as the analysts factored in the latest outlook for the business, concluding that they were too optimistic previously. The stock price has risen 5.8% to AU$0.64 over the past week. Investors could be forgiven for changing their mind on the business following the downgrade; but it's not clear if the revised forecasts will lead to selling activity.

After the downgrade, the twin analysts covering Ardent Leisure Group are now predicting revenues of AU$337m in 2021. If met, this would reflect a sizeable 24% improvement in sales compared to the last 12 months. Losses are predicted to fall substantially, shrinking 48% to AU$0.21. However, before this estimates update, the consensus had been expecting revenues of AU$383m and AU$0.12 per share in losses. So there's been quite a change-up of views after the recent consensus updates, with the analysts making a serious cut to their revenue forecasts while also expecting losses per share to increase.

Check out our latest analysis for Ardent Leisure Group

Analysts lifted their price target 7.4% to AU$0.73, implicitly signalling that lower earnings per share are not expected to have a longer-term impact on the stock's value. The consensus price target is just an average of individual analyst targets, so - it could be handy to see how wide the range of underlying estimates is. Currently, the most bullish analyst values Ardent Leisure Group at AU$1.03 per share, while the most bearish prices it at AU$0.55. Note the wide gap in analyst price targets? This implies to us that there is a fairly broad range of possible scenarios for the underlying business.

Of course, another way to look at these forecasts is to place them into context against the industry itself. For example, we noticed that Ardent Leisure Group's rate of growth is expected to accelerate meaningfully, with revenues forecast to exhibit 24% growth to the end of 2021 on an annualised basis. That is well above its historical decline of 2.6% a year over the past five years. Compare this against analyst estimates for the broader industry, which suggest that (in aggregate) industry revenues are expected to grow 17% annually. Not only are Ardent Leisure Group's revenues expected to improve, it seems that the analysts are also expecting it to grow faster than the wider industry.

The Bottom Line

The most important thing to take away is that analysts increased their loss per share estimates for this year. While analysts did downgrade their revenue estimates, these forecasts still imply revenues will perform better than the wider market. The increasing price target is not intuitively what we would expect to see, given these downgrades, and we'd suggest shareholders revisit their investment thesis before making a decision.

Even so, the longer term trajectory of the business is much more important for the value creation of shareholders. We have analyst estimates for Ardent Leisure Group going out as far as 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.

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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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