Today is shaping up negative for Serko Limited (NZSE:SKO) shareholders, with the analysts delivering a substantial negative revision to this year's forecasts. Both revenue and earnings per share (EPS) forecasts went under the knife, suggesting the analysts have soured majorly on the business.
Following the downgrade, the most recent consensus for Serko from its six analysts is for revenues of NZ$41m in 2023 which, if met, would be a huge 116% increase on its sales over the past 12 months. Losses are predicted to fall substantially, shrinking 26% to NZ$0.22. However, before this estimates update, the consensus had been expecting revenues of NZ$50m and NZ$0.19 per share in losses. 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.
The consensus price target was broadly unchanged at NZ$6.34, perhaps implicitly signalling that the weaker earnings outlook is not expected to have a long-term impact on the valuation. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. There are some variant perceptions on Serko, with the most bullish analyst valuing it at NZ$8.95 and the most bearish at NZ$4.50 per share. 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.
Taking a look at the bigger picture now, one of the ways we can understand these forecasts is to see how they compare to both past performance and industry growth estimates. The analysts are definitely expecting Serko's growth to accelerate, with the forecast 116% annualised growth to the end of 2023 ranking favourably alongside historical growth of 0.5% per annum 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 18% per year. It seems obvious that, while the growth outlook is brighter than the recent past, the analysts also expect Serko to grow faster than the wider 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 Serko. While analysts did downgrade their revenue estimates, these forecasts still imply revenues will perform better than the wider market. The lack of change in the price target is puzzling in light of the downgrade but, with a serious decline expected this year, we wouldn't be surprised if investors were a bit wary of Serko.
With that said, the long-term trajectory of the company's earnings is a lot more important than next year. We have estimates - from multiple Serko analysts - going out to 2025, and you can see them 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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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.
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