Time To Worry? Analysts Just Downgraded Their Experience Co Limited (ASX:EXP) Outlook

The analysts covering Experience Co Limited (ASX:EXP) delivered a dose of negativity to shareholders today, by making a substantial revision to their statutory forecasts for this year. There was a fairly draconian cut to their revenue estimates, perhaps an implicit admission that previous forecasts were much too optimistic. Investors however, have been notably more optimistic about Experience Co recently, with the stock price up a remarkable 22% to AU$0.23 in the past week. It will be interesting to see if the downgrade has an impact on buying demand for the company's shares.

Following the latest downgrade, the three analysts covering Experience Co provided consensus estimates of AU$52m revenue in 2021, which would reflect a sizeable 40% decline on its sales over the past 12 months. Prior to the latest estimates, the analysts were forecasting revenues of AU$64m in 2021. The consensus view seems to have become more pessimistic on Experience Co, noting the substantial drop in revenue estimates in this update.

Check out our latest analysis for Experience Co

The consensus price target rose 17% to AU$0.25, with the analysts clearly more optimistic about Experience Co's prospects following this update. 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. There are some variant perceptions on Experience Co, with the most bullish analyst valuing it at AU$0.27 and the most bearish at AU$0.14 per share. Analysts definitely have varying views on the business, but the spread of estimates is not wide enough in our view to suggest that extreme outcomes could await Experience Co shareholders.

Taking a look at the bigger picture now, one of the ways we can understand these forecasts is to see how they compare to both past performance and industry growth estimates. We would highlight that sales are expected to reverse, with the forecast 40% revenue decline a notable change from historical growth of 23% over the last five years. Compare this with our data, which suggests that other companies in the same industry are, in aggregate, expected to see their revenue grow 13% next year. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - Experience Co is expected to lag the wider industry.

The Bottom Line

The clear low-light was that analysts slashing their revenue forecasts for Experience Co this year. They're also anticipating slower revenue growth than the wider market. There was also an increase in the price target, suggesting that there is more optimism baked into the forecasts than there was previously. Overall, given the drastic downgrade to this year's forecasts, we'd be feeling a little more wary of Experience Co going forwards.

Unsatisfied? At least one of Experience Co's three analysts has provided estimates out to 2023, which can be seen 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.

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