The latest analyst coverage could presage a bad day for MMA Offshore Limited (ASX:MRM), with the analysts making across-the-board cuts to their statutory estimates that might leave shareholders a little shell-shocked. Revenue estimates were cut sharply as the analysts signalled a weaker outlook - perhaps a sign that investors should temper their expectations as well. Surprisingly the share price has been buoyant, rising 10% to AU$0.33 in the past 7 days. It will be interesting to see if the downgrade has an impact on buying demand for the company's shares.
Following the downgrade, the consensus from two analysts covering MMA Offshore is for revenues of AU$241m in 2021, implying an uncomfortable 8.0% decline in sales compared to the last 12 months. The loss per share is anticipated to greatly reduce in the near future, narrowing 96% to AU$0.021. Yet before this consensus update, the analysts had been forecasting revenues of AU$280m and losses of AU$0.01 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.
Another way we can view these estimates is in the context of the bigger picture, such as how the forecasts stack up against past performance, and whether forecasts are more or less bullish relative to other companies in the industry. We would also point out that the forecast 15% annualised revenue decline to the end of 2021 is roughly in line with the historical trend, which saw revenues shrink 14% annually over the past five years By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to see their revenue grow 6.8% per year. So it's pretty clear that, while it does have declining revenues, the analysts also expect MMA Offshore to suffer 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 MMA Offshore. Regrettably, they also downgraded their revenue estimates, and the latest forecasts imply the business will grow sales slower than the wider market. 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 MMA Offshore after today.
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 MMA Offshore's business, like major dilution from new stock issuance in the past year. For more information, you can click here to discover this and the 2 other risks 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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