Market forces rained on the parade of Openpay Group Ltd (ASX:OPY) 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.
Following the downgrade, the most recent consensus for Openpay Group from its two analysts is for revenues of AU$29m in 2021 which, if met, would be a huge 24% increase on its sales over the past 12 months. Losses are forecast to narrow 7.8% to AU$0.41 per share. Yet prior to the latest estimates, the analysts had been forecasting revenues of AU$33m and losses of AU$0.29 per share in 2021. 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.
The consensus price target fell 12% to AU$3.70, with the analysts clearly concerned about the company following the weaker revenue and earnings outlook. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. There are some variant perceptions on Openpay Group, with the most bullish analyst valuing it at AU$4.00 and the most bearish at AU$3.40 per share. Still, with such a tight range of estimates, it suggests the analysts have a pretty good idea of what they think the company is worth.
Of course, another way to look at these forecasts is to place them into context against the industry itself. We can infer from the latest estimates that forecasts expect a continuation of Openpay Group'shistorical trends, as the 55% annualised revenue growth to the end of 2021 is roughly in line with the 61% annual revenue growth over the past year. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to see their revenues grow 26% per year. So it's pretty clear that Openpay Group is forecast to grow substantially faster than its 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 Openpay Group. While analysts did downgrade their revenue estimates, these forecasts still imply revenues will perform better than the wider market. After such a stark change in sentiment from analysts, we'd understand if readers now felt a bit wary of Openpay Group.
Even so, the longer term trajectory of the business is much more important for the value creation of shareholders. At least one analyst has provided forecasts out to 2024, 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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