What You Need To Know About The The Restaurant Group plc (LON:RTN) Analyst Downgrade Today

Market forces rained on the parade of The Restaurant Group plc (LON:RTN) shareholders today, when the analysts downgraded their forecasts for this year. This report focused on revenue estimates, and it looks as though the consensus view of the business has become substantially more conservative.

After this downgrade, Restaurant Group's eleven analysts are now forecasting revenues of UK£543m in 2021. This would be a decent 18% improvement in sales compared to the last 12 months. Before the latest update, the analysts were foreseeing UK£610m of revenue in 2021. It looks like forecasts have become a fair bit less optimistic on Restaurant Group, given the measurable cut to revenue estimates.

See our latest analysis for Restaurant Group

There was no particular change to the consensus price target of UK£1.16, with Restaurant Group's latest outlook seemingly not enough to result in a change of valuation. 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 Restaurant Group at UK£3.10 per share, while the most bearish prices it at UK£0.74. We would probably assign less value to the forecasts in this situation, because such a wide range of estimates could imply that the future of this business is difficult to value accurately. 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.

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 clear from the latest estimates that Restaurant Group's rate of growth is expected to accelerate meaningfully, with the forecast 18% annualised revenue growth to the end of 2021 noticeably faster than its historical growth of 2.7% p.a. 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 13% per year. Factoring in the forecast acceleration in revenue, it's pretty clear that Restaurant Group is expected to grow much faster than its industry.

The Bottom Line

The clear low-light was that analysts slashing their revenue forecasts for Restaurant Group this year. Analysts also expect revenues to grow faster than the wider market. Overall, given the drastic downgrade to this year's forecasts, we'd be feeling a little more wary of Restaurant Group going forwards.

That said, the analysts might have good reason to be negative on Restaurant Group, given a short cash runway. Learn more, and discover the 2 other flags we've identified, for 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.

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