What You Need To Know About The Bubs Australia Limited (ASX:BUB) Analyst Downgrade Today

The analysts covering Bubs Australia Limited (ASX:BUB) delivered a dose of negativity to shareholders today, by making a substantial revision to their statutory forecasts for this year. Revenue estimates were cut sharply as the analysts signalled a weaker outlook - perhaps a sign that investors should temper their expectations as well.

After the downgrade, the consensus from Bubs Australia's three analysts is for revenues of AU$43m in 2021, which would reflect a small 5.1% decline in sales compared to the last year of performance. Before the latest update, the analysts were foreseeing AU$49m of revenue in 2021. It looks like forecasts have become a fair bit less optimistic on Bubs Australia, given the measurable cut to revenue estimates.

See our latest analysis for Bubs Australia

We'd point out that there was no major changes to their price target of AU$0.55, suggesting the latest estimates were not enough to shift their view on the value of the business. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company's valuation. There are some variant perceptions on Bubs Australia, with the most bullish analyst valuing it at AU$0.75 and the most bearish at AU$0.35 per share. This is a fairly broad spread of estimates, suggesting that the analysts are forecasting a wide range of possible outcomes for the business.

Of course, another way to look at these forecasts is to place them into context against the industry itself. These estimates imply that sales are expected to slow, with a forecast annualised revenue decline of 5.1% by the end of 2021. This indicates a significant reduction from annual growth of 43% 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 9.1% annually for the foreseeable future. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - Bubs Australia is expected to lag the wider industry.

The Bottom Line

The clear low-light was that analysts slashing their revenue forecasts for Bubs Australia this year. They're also anticipating slower revenue growth than the wider market. Given the stark change in sentiment, we'd understand if investors became more cautious on Bubs Australia after today.

Of course, this isn't the full story. We have estimates for Bubs Australia from its three analysts out until 2023, and you can see them 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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