Need To Know: This Analyst Just Made A Substantial Cut To Their REC Silicon ASA (OB:RECSI) Estimates

Today is shaping up negative for REC Silicon ASA (OB:RECSI) shareholders, with the covering analyst delivering a substantial negative revision to this year's forecasts. 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. The stock price has risen 4.2% to kr15.70 over the past week. It will be interesting to see if this downgrade motivates investors to start selling their holdings.

After the downgrade, the lone analyst covering REC Silicon is now predicting revenues of US$166m in 2023. If met, this would reflect a meaningful 12% improvement in sales compared to the last 12 months. The loss per share is anticipated to greatly reduce in the near future, narrowing 28% to US$0.15. Yet prior to the latest estimates, the analyst had been forecasting revenues of US$192m and losses of US$0.12 per share in 2023. 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.

View our latest analysis for REC Silicon

The consensus price target fell 25% to kr27.00, with the analyst clearly concerned about the company following the weaker revenue and earnings outlook.

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. One thing stands out from these estimates, which is that REC Silicon is forecast to grow faster in the future than it has in the past, with revenues expected to display 12% annualised growth until the end of 2023. If achieved, this would be a much better result than the 16% annual decline over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to see their revenue grow 12% per year. So while REC Silicon's revenues are expected to improve, it seems that it is expected to grow at about the same rate as the overall industry.

The Bottom Line

The most important thing to note from this downgrade is that the consensus increased its forecast losses this year, suggesting all may not be well at REC Silicon. There was also a drop in their revenue estimates, although as we saw earlier, forecast growth is only expected to be about the same as the wider market. After such a stark change in sentiment from the analyst, we'd understand if readers now felt a bit wary of REC Silicon.

After a downgrade like this, it's pretty clear that previous forecasts were too optimistic. What's more, we've spotted several possible issues with REC Silicon's business, like a short cash runway. Learn more, and discover the 1 other risk 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.