Analysts Are More Bearish On New Gold Inc. (TSE:NGD) Than They Used To Be

The analysts covering New Gold Inc. (TSE:NGD) delivered a dose of negativity to shareholders today, by making a substantial revision to their statutory forecasts for this year. Both revenue and earnings per share (EPS) estimates were cut sharply as the analysts factored in the latest outlook for the business, concluding that they were too optimistic previously.

After the downgrade, the nine analysts covering New Gold are now predicting revenues of US$784m in 2022. If met, this would reflect a satisfactory 5.1% improvement in sales compared to the last 12 months. Statutory earnings per share are anticipated to crater 25% to US$0.15 in the same period. Previously, the analysts had been modelling revenues of US$897m and earnings per share (EPS) of US$0.23 in 2022. Indeed, we can see that the analysts are a lot more bearish about New Gold's prospects, administering a substantial drop in revenue estimates and slashing their EPS estimates to boot.

Check out our latest analysis for New Gold

Analysts made no major changes to their price target of US$1.95, suggesting the downgrades are not expected to have a long-term impact on New Gold's valuation. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. Currently, the most bullish analyst values New Gold at US$3.25 per share, while the most bearish prices it at US$1.97. Note the wide gap in analyst price targets? This implies to us that there is a fairly broad range of possible scenarios for the underlying business.

Another way we can view these estimates is in the context of the bigger picture, such as how the forecasts stack up against past performance, and whether forecasts are more or less bullish relative to other companies in the industry. It's pretty clear that there is an expectation that New Gold's revenue growth will slow down substantially, with revenues to the end of 2022 expected to display 5.1% growth on an annualised basis. This is compared to a historical growth rate of 10% over the past five years. Compare this against other companies (with analyst forecasts) in the industry, which are in aggregate expected to see revenue growth of 8.7% annually. So it's pretty clear that, while revenue growth is expected to slow down, the wider industry is also expected to grow faster than New Gold.

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 New Gold. Unfortunately analysts also downgraded their revenue estimates, and industry data suggests that New Gold's revenues are expected to grow slower than the wider market. The lack of change in the price target is puzzling in light of the downgrade but, with a serious decline expected this year, we wouldn't be surprised if investors were a bit wary of New Gold.

Even so, the longer term trajectory of the business is much more important for the value creation of shareholders. We have estimates - from multiple New Gold analysts - going out to 2024, 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.