What Does The Future Hold For IOG plc (LON:IOG)? These Analysts Have Been Cutting Their Estimates

Today is shaping up negative for IOG plc (LON:IOG) shareholders, with the analysts delivering a substantial negative revision to this year's forecasts. This report focused on revenue estimates, and it looks as though the consensus view of the business has become substantially more conservative. The stock price has risen 7.2% to UK£0.12 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 current consensus from IOG's three analysts is for revenues of UK£79m in 2022 which - if met - would reflect a major 162% increase on its sales over the past 12 months. Per-share earnings are expected to soar 1,906% to UK£0.27. Prior to this update, the analysts had been forecasting revenues of UK£103m and earnings per share (EPS) of UK£0.30 in 2022. It looks like analyst sentiment has declined substantially, with a sizeable cut to revenue estimates and a considerable drop in earnings per share numbers as well.

Our analysis indicates that IOG is potentially undervalued!

The consensus price target fell 20% to UK£0.50, with the weaker earnings outlook clearly leading analyst valuation estimates. The consensus price target is just an average of individual analyst targets, so - it could be handy to see how wide the range of underlying estimates is. The most optimistic IOG analyst has a price target of UK£0.75 per share, while the most pessimistic values it at UK£0.50. There are definitely some different views on the stock, but the range of estimates is not wide enough as to imply that the situation is unforecastable, in our view.

Of course, another way to look at these forecasts is to place them into context against the industry itself. The analysts are definitely expecting IOG's growth to accelerate, with the forecast 162% annualised growth to the end of 2022 ranking favourably alongside historical growth of 105% per annum over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in the same industry are forecast to see their revenue shrink 6.5% per year. It seems obvious that as part of the brighter growth outlook, IOG is expected to grow faster than the wider industry.

The Bottom Line

The biggest issue in the new estimates is that analysts have reduced their earnings per share estimates, suggesting business headwinds lay ahead for IOG. Unfortunately, they also downgraded their revenue estimates, and our data indicates sales are expected to outperform the wider market. Even so, earnings per share are more important to the intrinsic value of the business. Furthermore, there was a cut to the price target, suggesting that the latest news has led to more pessimism about the intrinsic value of the business. Given the stark change in sentiment, we'd understand if investors became more cautious on IOG after today.

That said, the analysts might have good reason to be negative on IOG, given concerns around earnings quality. For more information, you can click here to discover this and the 1 other flag we've identified.

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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.