News Flash: 7 Analysts Think PolyNovo Limited (ASX:PNV) Earnings Are Under Threat

The latest analyst coverage could presage a bad day for PolyNovo Limited (ASX:PNV), with the analysts making across-the-board cuts to their statutory estimates that might leave shareholders a little shell-shocked. 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.

Following the downgrade, the most recent consensus for PolyNovo from its seven analysts is for revenues of AU$31m in 2021 which, if met, would be a sizeable 27% increase on its sales over the past 12 months. Losses are presumed to reduce, shrinking 12% from last year to AU$0.0071. Yet prior to the latest estimates, the analysts had been forecasting revenues of AU$36m and losses of AU$0.0057 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.

Check out our latest analysis for PolyNovo

The consensus price target fell 9.2% to AU$2.65, implicitly signalling that lower earnings per share are a leading indicator for PolyNovo's 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. Currently, the most bullish analyst values PolyNovo at AU$3.30 per share, while the most bearish prices it at AU$1.74. These price targets show that analysts do have some differing views on the business, but the estimates do not vary enough to suggest to us that some are betting on wild success or utter failure.

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. The analysts are definitely expecting PolyNovo's growth to accelerate, with the forecast 60% annualised growth to the end of 2021 ranking favourably alongside historical growth of 48% per annum over the past five years. Compare this with other companies in the same industry, which are forecast to grow their revenue 15% annually. Factoring in the forecast acceleration in revenue, it's pretty clear that PolyNovo is expected to grow much faster than its industry.

The Bottom Line

The most important thing to take away is that analysts increased their loss per share estimates for this year. Unfortunately, analysts also downgraded their revenue estimates, although our data indicates revenues are expected to perform better than the wider market. Given the scope of the downgrades, it would not be a surprise to see the market become more wary of the business.

With that said, the long-term trajectory of the company's earnings is a lot more important than next year. We have estimates - from multiple PolyNovo analysts - 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.

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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.
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