The Consensus EPS Estimates For Auxly Cannabis Group Inc. (TSE:XLY) Just Fell Dramatically

The analysts covering Auxly Cannabis Group Inc. (TSE:XLY) delivered a dose of negativity to shareholders today, by making a substantial revision to their statutory forecasts for this year. Revenue and earnings per share (EPS) forecasts were both revised downwards, with analysts seeing grey clouds on the horizon. Surprisingly the share price has been buoyant, rising 20% to CA$0.09 in the past 7 days. Whether the downgrade will have a negative impact on demand for shares is yet to be seen.

Following this downgrade, Auxly Cannabis Group's four analysts are forecasting 2022 revenues to be CA$99m, approximately in line with the last 12 months. Per-share losses are expected to explode, reaching CA$0.10 per share. Yet before this consensus update, the analysts had been forecasting revenues of CA$111m and losses of CA$0.093 per share in 2022. 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.

View our latest analysis for Auxly Cannabis Group

The consensus price target fell 25% to CA$0.22, implicitly signalling that lower earnings per share are a leading indicator for Auxly Cannabis Group's valuation. That's not the only conclusion we can draw from this data however, as some investors also like to consider the spread in estimates when evaluating analyst price targets. The most optimistic Auxly Cannabis Group analyst has a price target of CA$0.35 per share, while the most pessimistic values it at CA$0.08. With such a wide range in price targets, the analysts are almost certainly betting on widely diverse outcomes for the underlying business. With this in mind, we wouldn't rely too heavily on the consensus price target, as it is just an average and analysts clearly have some deeply divergent views on the business.

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 Auxly Cannabis Group's revenue growth is expected to slow, with the forecast 2.0% annualised growth rate until the end of 2022 being well below the historical 74% p.a. growth over the last five years. Compare this against other companies (with analyst forecasts) in the industry, which are in aggregate expected to see revenue growth of 23% 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 Auxly Cannabis Group.

The Bottom Line

The most important thing to take away is that analysts increased their loss per share estimates for this year. Unfortunately analysts also downgraded their revenue estimates, and industry data suggests that Auxly Cannabis Group's revenues are expected to grow slower than the wider market. Given the scope of the downgrades, it would not be a surprise to see the market become more wary of the business.

That said, the analysts might have good reason to be negative on Auxly Cannabis Group, given a short cash runway. For more information, you can click here to discover this and the 4 other risks 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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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.