One Forecaster Is Now More Bearish On Cann Group Limited (ASX:CAN) Than They Used To Be

Market forces rained on the parade of Cann Group Limited (ASX:CAN) shareholders today, when the covering analyst downgraded their forecasts for this year. There was a fairly draconian cut to their revenue estimates, perhaps an implicit admission that previous forecasts were much too optimistic. Investors however, have been notably more optimistic about Cann Group recently, with the stock price up a magnificent 77% to AU$0.55 in the past week. It will be interesting to see if the downgrade has an impact on buying demand for the company's shares.

After this downgrade, Cann Group's single analyst is now forecasting revenues of AU$14m in 2021. This would be a huge improvement in sales compared to the last 12 months. Before the latest update, the analyst was foreseeing AU$16m of revenue in 2021. The consensus view seems to have become more pessimistic on Cann Group, noting the substantial drop in revenue estimates in this update.

Check out our latest analysis for Cann Group

We'd point out that there was no major changes to their price target of AU$1.86, suggesting the latest estimates were not enough to shift their view on the value of the business. The consensus price target is just an average of individual analyst targets, so - it could be handy to see how wide the range of underlying estimates is. The most optimistic Cann Group analyst has a price target of AU$2.60 per share, while the most pessimistic values it at AU$1.12. 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.

These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the Cann Group's past performance and to peers in the same industry. The analyst is definitely expecting Cann Group's growth to accelerate, with the forecast 8x growth ranking favourably alongside historical growth of 60% per annum over the past five years. Compare this with other companies in the same industry, which are forecast to grow their revenue 36% next year. It seems obvious that, while the growth outlook is brighter than the recent past, the analyst also expect Cann Group to grow faster than the wider industry.

The Bottom Line

The clear low-light was that the analyst slashing their revenue forecasts for Cann Group this year. The analyst also expects revenues to grow faster 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 Cann Group after today.

So things certainly aren't looking great, and you should also know that we've spotted some potential warning signs with Cann Group, including major dilution from new stock issuance in the past year. For more information, you can click here to discover this and the 3 other risks we've identified.

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