Market forces rained on the parade of EnWave Corporation (CVE:ENW) shareholders today, when the analysts downgraded their forecasts for this year. This report focused on revenue estimates, and it looks as though the consensus view of the business has become substantially more conservative.
Following the downgrade, the latest consensus from EnWave's three analysts is for revenues of CA$40m in 2021, which would reflect a major 25% improvement in sales compared to the last 12 months. Prior to this update, the analysts had been forecasting revenues of CA$46m and earnings per share (EPS) of CA$0.02 in 2021. It looks like analyst sentiment has declined substantially, with a measurable cut to revenue estimates and a earnings per share numbers as well.
The consensus price target fell 5.9% to CA$1.58, with the analysts clearly less optimistic about EnWave's valuation following this update. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. The most optimistic EnWave analyst has a price target of CA$2.15 per share, while the most pessimistic values it at CA$1.10. This is a fairly broad spread of estimates, suggesting that the analysts are forecasting a wide range of possible outcomes for the 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 EnWave's growth to accelerate, with the forecast 34% annualised growth to the end of 2021 ranking favourably alongside historical growth of 27% per annum over the past five years. Compare this with other companies in the same industry, which are forecast to grow their revenue 22% annually. It seems obvious that, while the growth outlook is brighter than the recent past, the analysts also expect EnWave to grow faster than the wider industry.
The Bottom Line
The biggest issue in the new estimates is that analysts have reduced their earnings per share estimates, suggesting business headwinds lay ahead for EnWave. While analysts did downgrade their revenue estimates, these forecasts still imply revenues will perform better than the wider market. The consensus price target fell measurably, with analysts seemingly not reassured by recent business developments, leading to a lower estimate of EnWave's future valuation. Given the stark change in sentiment, we'd understand if investors became more cautious on EnWave after today.
With that said, the long-term trajectory of the company's earnings is a lot more important than next year. We have estimates - from multiple EnWave analysts - going out to 2023, and you can see them free on our platform here.
Another way to search for interesting companies that could be reaching an inflection point is to track whether management are buying or selling, with our free list of growing companies that insiders are buying.
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