One Forecaster Is Now More Bearish On Ecofibre Limited (ASX:EOF) Than They Used To Be

Market forces rained on the parade of Ecofibre Limited (ASX:EOF) shareholders today, when the covering analyst downgraded their forecasts for this year. Revenue estimates were cut sharply as the analyst signalled a weaker outlook - perhaps a sign that investors should temper their expectations as well. Bidders are definitely seeing a different story, with the stock price of AU$0.74 reflecting a 35% rise in the past week. It will be interesting to see if the downgrade has an impact on buying demand for the company's shares.

Following the downgrade, the most recent consensus for Ecofibre from its solitary analyst is for revenues of AU$38m in 2021 which, if met, would be an okay 3.3% increase on its sales over the past 12 months. Following this this downgrade, earnings are now expected to tip over into loss-making territory, with the analyst forecasting losses of AU$0.022 per share in 2021. Yet prior to the latest estimates, the analyst had been forecasting revenues of AU$58m and losses of AU$0.022 per share in 2021. So there's definitely been a change in sentiment in this update, with the analyst administering a substantial haircut to this year's revenue estimates, while at the same time holding losses per share steady.

Check out our latest analysis for Ecofibre

The consensus price target fell 31% to AU$1.14, with the analyst clearly concerned about the weaker revenue outlook and expectation of ongoing losses.

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. For example, we noticed that Ecofibre's rate of growth is expected to accelerate meaningfully, with revenues forecast to exhibit 3.3% growth to the end of 2021 on an annualised basis. That is well above its historical decline of 29% a year over the past year. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to see their revenue grow 32% per year. So although Ecofibre's revenue growth is expected to improve, it is still expected to grow slower than the industry.

The Bottom Line

Unfortunately the analyst also downgraded their revenue estimates, and industry data suggests that Ecofibre's revenues are expected to grow slower 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. Overall, given the drastic downgrade to this year's forecasts, we'd be feeling a little more wary of Ecofibre going forwards.

That said, this analyst might have good reason to be negative on Ecofibre, given dilutive stock issuance over the past year. Learn more, and discover the 3 other flags 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 downgrading their estimates. So you may also wish to search this free list of stocks that insiders are buying.

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