One thing we could say about the covering analyst on Genetic Signatures Limited (ASX:GSS) - 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) forecasts went under the knife, suggesting the analyst has soured majorly on the business.
After the downgrade, the consensus from Genetic Signatures' solitary analyst is for revenues of AU$28m in 2021, which would reflect a noticeable 3.9% decline in sales compared to the last year of performance. Statutory earnings per share are anticipated to tumble 70% to AU$0.01 in the same period. Previously, the analyst had been modelling revenues of AU$34m and earnings per share (EPS) of AU$0.037 in 2021. Indeed, we can see that the analyst is a lot more bearish about Genetic Signatures' prospects, administering a substantial drop in revenue estimates and slashing their EPS estimates to boot.
The analyst made no major changes to their price target of AU$3.20, suggesting the downgrades are not expected to have a long-term impact on Genetic Signatures' valuation.
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. We would highlight that sales are expected to reverse, with a forecast 7.6% annualised revenue decline to the end of 2021. That is a notable change from historical growth of 43% over the last five years. Compare this with our data, which suggests that other companies in the same industry are, in aggregate, expected to see their revenue grow 13% per year. It's pretty clear that Genetic Signatures' revenues are expected to perform substantially worse than the wider industry.
The Bottom Line
The biggest issue in the new estimates is that the analyst has reduced their earnings per share estimates, suggesting business headwinds lay ahead for Genetic Signatures. Unfortunately the analyst also downgraded their revenue estimates, and industry data suggests that Genetic Signatures' revenues are expected to grow slower than the wider market. We're also surprised to see that the price target went unchanged. Still, deteriorating business conditions (assuming accurate forecasts!) can be a leading indicator for the stock price, so we wouldn't blame investors for being more cautious on Genetic Signatures after the downgrade.
After a downgrade like this, it's pretty clear that previous forecasts were too optimistic. What's more, we've spotted several possible issues with Genetic Signatures' business, like concerns around earnings quality. Learn more, and discover the 1 other concern 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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