Some Analysts Just Cut Their Farmers Edge Inc. (TSE:FDGE) Estimates

Market forces rained on the parade of Farmers Edge Inc. (TSE:FDGE) shareholders today, when the analysts downgraded their forecasts for next year. 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 latest consensus from Farmers Edge's six analysts is for revenues of CA$47m in 2023, which would reflect a major 32% improvement in sales compared to the last 12 months. Before the latest update, the analysts were foreseeing CA$53m of revenue in 2023. The consensus view seems to have become more pessimistic on Farmers Edge, noting the substantial drop in revenue estimates in this update.

Our analysis indicates that FDGE is potentially overvalued!

The consensus price target fell 26% to CA$0.78, with the analysts clearly less optimistic about Farmers Edge's 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 Farmers Edge at CA$2.00 per share, while the most bearish prices it at CA$0.30. With such a wide range in price targets, the analysts are almost certainly betting on widely diverse outcomes for the underlying business. As a result it might not be possible to derive much meaning from the consensus price target, which is after all just an average of this wide range of estimates.

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. The analysts are definitely expecting Farmers Edge's growth to accelerate, with the forecast 25% annualised growth to the end of 2023 ranking favourably alongside historical growth of 16% per annum over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to grow their revenue at 16% per year. Factoring in the forecast acceleration in revenue, it's pretty clear that Farmers Edge is expected to grow much faster than its industry.

The Bottom Line

The clear low-light was that analysts slashing their revenue forecasts for Farmers Edge next year. The analysts also expect revenues to grow faster 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 Farmers Edge's future valuation. Overall, given the drastic downgrade to next year's forecasts, we'd be feeling a little more wary of Farmers Edge going forwards.

As you can see, the analysts clearly aren't bullish, and there might be good reason for that. We've identified some potential issues with Farmers Edge's financials, such as a short cash runway. Learn more, and discover the 2 other flags we've identified, for 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.