Things Look Grim For Dotz S.A. (BVMF:DOTZ3) After Today's Downgrade

The latest analyst coverage could presage a bad day for Dotz S.A. (BVMF:DOTZ3), 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) forecasts went under the knife, suggesting the analysts have soured majorly on the business. At R$1.06, shares are up 7.1% in the past 7 days. Investors could be forgiven for changing their mind on the business following the downgrade; but it's not clear if the revised forecasts will lead to selling activity.

Following the downgrade, the most recent consensus for Dotz from its four analysts is for revenues of R$161m in 2023 which, if met, would be a meaningful 18% increase on its sales over the past 12 months. The loss per share is anticipated to greatly reduce in the near future, narrowing 39% to R$0.44. Yet prior to the latest estimates, the analysts had been forecasting revenues of R$181m and losses of R$0.26 per share in 2023. Ergo, there's been a clear change in sentiment, with the analysts administering a notable cut to this year's revenue estimates, while at the same time increasing their loss per share forecasts.

Check out our latest analysis for Dotz

The consensus price target fell 19% to R$1.88, with the analysts clearly concerned about the company following the weaker revenue and earnings outlook. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. There are some variant perceptions on Dotz, with the most bullish analyst valuing it at R$3.00 and the most bearish at R$1.20 per share. This is a fairly broad spread of estimates, suggesting that the analysts are forecasting a wide range of possible outcomes for the business.

These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the Dotz's past performance and to peers in the same industry. The analysts are definitely expecting Dotz's growth to accelerate, with the forecast 25% annualised growth to the end of 2023 ranking favourably alongside historical growth of 2.9% per annum over the past year. Compare this with other companies in the same industry, which are forecast to grow their revenue 9.4% annually. Factoring in the forecast acceleration in revenue, it's pretty clear that Dotz is expected to grow much faster than its industry.

The Bottom Line

The most important thing to note from this downgrade is that the consensus increased its forecast losses this year, suggesting all may not be well at Dotz. Unfortunately, analysts also downgraded their revenue estimates, although our data indicates revenues are expected to perform better than the wider market. After such a stark change in sentiment from analysts, we'd understand if readers now felt a bit wary of Dotz.

Still, the long-term prospects of the business are much more relevant than next year's earnings. We have estimates - from multiple Dotz 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. 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.