Time To Worry? Analysts Are Downgrading Their Nanosonics Limited (ASX:NAN) Outlook

One thing we could say about the analysts on Nanosonics Limited (ASX:NAN) - they aren't optimistic, having just made a major negative revision to their near-term (statutory) forecasts for the organization. Both revenue and earnings per share (EPS) estimates were cut sharply as analysts factored in the latest outlook for the business, concluding that they were too optimistic previously.

After this downgrade, Nanosonics' ten analysts are now forecasting revenues of AU$102m in 2021. This would be an okay 7.4% improvement in sales compared to the last 12 months. Statutory earnings per share are anticipated to shrink 8.8% to AU$0.018 in the same period. Before this latest update, the analysts had been forecasting revenues of AU$114m and earnings per share (EPS) of AU$0.041 in 2021. Indeed, we can see that the analysts are a lot more bearish about Nanosonics' prospects, administering a measurable cut to revenue estimates and slashing their EPS estimates to boot.

View our latest analysis for Nanosonics

Analysts made no major changes to their price target of AU$5.35, suggesting the downgrades are not expected to have a long-term impact on Nanosonics' valuation. 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 Nanosonics, with the most bullish analyst valuing it at AU$7.00 and the most bearish at AU$2.95 per share. 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.

Looking at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up against both past performance and industry growth estimates. The period to the end of 2021 brings more of the same, according to the analysts, with revenue forecast to display 15% growth on an annualised basis. That is in line with its 18% annual growth over the past five years. Compare this with the broader industry, which analyst estimates (in aggregate) suggest will see revenues grow 15% annually. It's clear that while Nanosonics' revenue growth is expected to continue on its current trajectory, it's only expected to grow in line with the industry itself.

The Bottom Line

The biggest issue in the new estimates is that analysts have reduced their earnings per share estimates, suggesting business headwinds lay ahead for Nanosonics. There was also a drop in their revenue estimates, although as we saw earlier, forecast growth is only expected to be about the same as the wider market. The lack of change in the price target is puzzling in light of the downgrade but, with a serious decline expected this year, we wouldn't be surprised if investors were a bit wary of Nanosonics.

Still, the long-term prospects of the business are much more relevant than next year's earnings. At Simply Wall St, we have a full range of analyst estimates for Nanosonics going out to 2025, 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.

If you’re looking to trade Nanosonics, open an account with the lowest-cost* platform trusted by professionals, Interactive Brokers. Their clients from over 200 countries and territories trade stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.