Things Look Grim For Farmers Edge Inc. (TSE:FDGE) After Today's Downgrade

The latest analyst coverage could presage a bad day for Farmers Edge Inc. (TSE:FDGE), with the analysts making across-the-board cuts to their statutory estimates that might leave shareholders a little shell-shocked. Both revenue and earnings per share (EPS) estimates were cut sharply as analysts factored in the latest outlook for the business, concluding that they were too optimistic previously. The stock price has risen 6.4% to CA$3.18 over the past week. We'd be curious to see if the downgrade is enough to reverse investor sentiment on the business.

Following the downgrade, the most recent consensus for Farmers Edge from its six analysts is for revenues of CA$59m in 2022 which, if met, would be a sizeable 63% increase on its sales over the past 12 months. Losses are forecast to narrow 9.9% to CA$1.43 per share. Yet before this consensus update, the analysts had been forecasting revenues of CA$71m and losses of CA$0.93 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 Farmers Edge

The consensus price target fell 17% to CA$3.65, with the analysts clearly concerned about the company following the weaker revenue and earnings outlook. 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$6.00 per share, while the most bearish prices it at CA$2.63. 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.

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. The analysts are definitely expecting Farmers Edge's growth to accelerate, with the forecast 63% annualised growth to the end of 2022 ranking favourably alongside historical growth of 24% per annum over the past three years. Compare this with other companies in the same industry, which are forecast to grow their revenue 18% annually. 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 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, although our data indicates revenues are expected to perform better than the wider market. With a serious cut to this year's expectations and a falling price target, we wouldn't be surprised if investors were becoming wary of Farmers Edge.

There might be good reason for analyst bearishness towards Farmers Edge, like a short cash runway. For more information, you can click here to discover this and the 2 other risks we've identified.

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.