This Analyst Just Downgraded Their Largo SA (EPA:ALLGO) EPS Forecasts

One thing we could say about the covering analyst on Largo SA (EPA:ALLGO) - they aren't optimistic, having just made a major negative revision to their near-term (statutory) forecasts for the organization. Both revenue and earnings per share (EPS) estimates were cut sharply as the analyst factored in the latest outlook for the business, concluding that they were too optimistic previously.

Following the downgrade, the latest consensus from Largo's one analyst is for revenues of €22m in 2022, which would reflect a major 25% improvement in sales compared to the last 12 months. The loss per share is expected to ameliorate slightly, reducing to €1.20. Yet before this consensus update, the analyst had been forecasting revenues of €30m and losses of €0.50 per share in 2022. So there's been quite a change-up of views after the recent consensus updates, with the analyst making a serious cut to their revenue forecasts while also expecting losses per share to increase.

Our analysis indicates that ALLGO is potentially overvalued!

The consensus price target fell 37% to €9.30, implicitly signalling that lower earnings per share are a leading indicator for Largo's valuation.

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. We can infer from the latest estimates that forecasts expect a continuation of Largo'shistorical trends, as the 25% annualised revenue growth to the end of 2022 is roughly in line with the 24% annual revenue growth over the past three years. Compare this with the broader industry, which analyst estimates (in aggregate) suggest will see revenues grow 2.6% annually. So although Largo is expected to maintain its revenue growth rate, it's definitely expected to grow faster than the wider industry.

The Bottom Line

The most important thing to take away is that the analyst increased their loss per share estimates for this year. While the analyst did downgrade their revenue estimates, these forecasts still imply revenues will 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 Largo.

Even so, the longer term trajectory of the business is much more important for the value creation of shareholders. At least one analyst has provided forecasts out to 2024, which can be seen 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.