Today is shaping up negative for Greenbrook TMS Inc. (TSE:GTMS) shareholders, with the analysts delivering a substantial negative revision to this year's forecasts. There was a fairly draconian cut to their revenue estimates, perhaps an implicit admission that previous forecasts were much too optimistic.
Following the downgrade, the current consensus from Greenbrook TMS' four analysts is for revenues of US$49m in 2020 which - if met - would reflect a substantial 36% increase on its sales over the past 12 months. Before the latest update, the analysts were foreseeing US$57m of revenue in 2020. It looks like forecasts have become a fair bit less optimistic on Greenbrook TMS, given the substantial drop in revenue estimates.
The consensus price target fell 5.8% to US$2.52, with the analysts clearly less optimistic about Greenbrook TMS' valuation following this update. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company's valuation. Currently, the most bullish analyst values Greenbrook TMS at US$2.91 per share, while the most bearish prices it at US$2.18. Even so, with a relatively close grouping of analyst estimates, it looks to us as though the analysts are quite confident in their valuations, suggesting that Greenbrook TMS is an easy business to forecast or that the underlying assumptions are knowable.
One way to get more context on these forecasts is to look at how they compare to both past performance, and how other companies in the same industry are performing. Next year brings more of the same, according to the analysts, with revenue forecast to grow 36%, in line with its 45% annual growth over the past three years. Compare this with the wider industry, which analyst estimates (in aggregate) suggest will see revenues grow 12% next year. So it's pretty clear that Greenbrook TMS is forecast to grow substantially faster than its industry.
The Bottom Line
The clear low-light was that analysts slashing their revenue forecasts for Greenbrook TMS this year. They're also forecasting more rapid revenue growth 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. Given the stark change in sentiment, we'd understand if investors became more cautious on Greenbrook TMS after today.
There might be good reason for analyst bearishness towards Greenbrook TMS, like a short cash runway. For more information, you can click here to discover this and the 3 other flags we've identified.
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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