New Forecasts: Here's What Analysts Think The Future Holds For Red 5 Limited (ASX:RED)

Celebrations may be in order for Red 5 Limited (ASX:RED) shareholders, with the analysts delivering a significant upgrade to their statutory estimates for the company. The analysts have sharply increased their revenue numbers, with a view that Red 5 will make substantially more sales than they'd previously expected.

Following the upgrade, the latest consensus from Red 5's three analysts is for revenues of AU$404m in 2023, which would reflect a major 65% improvement in sales compared to the last 12 months. Losses are expected to turn into profits real soon, with the analysts forecasting AU$0.018 in per-share earnings. Previously, the analysts had been modelling revenues of AU$364m and earnings per share (EPS) of AU$0.018 in 2023. There's clearly been a surge in bullishness around the company's sales pipeline, even if there's no real change in earnings per share forecasts.

View our latest analysis for Red 5

As a result, it might come as a surprise that the consensus price target has been cut 21% to AU$0.28, which could suggest that these earnings are considered less valuable by the market than previously. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. Currently, the most bullish analyst values Red 5 at AU$0.42 per share, while the most bearish prices it at AU$0.15. 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.

Of course, another way to look at these forecasts is to place them into context against the industry itself. The analysts are definitely expecting Red 5's growth to accelerate, with the forecast 65% annualised growth to the end of 2023 ranking favourably alongside historical growth of 18% per annum over the past five years. Compare this with other companies in the same industry, which are forecast to grow their revenue 0.3% annually. Factoring in the forecast acceleration in revenue, it's pretty clear that Red 5 is expected to grow much faster than its industry.

The Bottom Line

The most obvious conclusion from this consensus update is that there's been no major change in the business' prospects in recent times, with analysts holding earnings per share steady, in line with previous estimates. They also upgraded their revenue estimates for this year, and sales are expected to grow faster than the wider market. Furthermore, there was a cut to the price target, suggesting that the latest news has led to more pessimism about the intrinsic value of the business. Given that analysts appear to be expecting substantial improvement in the sales pipeline, now could be the right time to take another look at Red 5.

These earnings upgrades look like a sterling endorsement, but before diving in - you should know that we've spotted 3 potential warning signs with Red 5, including a short cash runway. You can learn more, and discover the 2 other warning signs we've identified, for 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 upgrading 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. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.