The analysts covering Vista Group International Limited (NZSE:VGL) delivered a dose of negativity to shareholders today, by making a substantial revision to their statutory forecasts for this year. Both revenue and earnings per share (EPS) forecasts went under the knife, suggesting analysts have soured majorly on the business. The stock price has risen 6.0% to NZ$1.76 over the past week. Investors could be forgiven for changing their mind on the business following the downgrade; but it's not clear if the revised forecasts will lead to selling activity.
Following the downgrade, the current consensus from Vista Group International's three analysts is for revenues of NZ$107m in 2021 which - if met - would reflect a major 22% increase on its sales over the past 12 months. Losses are predicted to fall substantially, shrinking 81% to NZ$0.045. Before this latest update, the analysts had been forecasting revenues of NZ$124m and earnings per share (EPS) of NZ$0.034 in 2021. There looks to have been a major change in sentiment regarding Vista Group International's prospects, with a measurable cut to revenues and the analysts now forecasting a loss instead of a profit.
There was no major change to the consensus price target of NZ$2.05, signalling that the business is performing roughly in line with expectations, despite lower earnings per share forecasts. There's another way to think about price targets though, and that's to look at the range of price targets put forward by analysts, because a wide range of estimates could suggest a diverse view on possible outcomes for the business. There are some variant perceptions on Vista Group International, with the most bullish analyst valuing it at NZ$2.25 and the most bearish at NZ$1.95 per share. This is a very narrow spread of estimates, implying either that Vista Group International is an easy company to value, or - more likely - the analysts are relying heavily on some key assumptions.
These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the Vista Group International's past performance and to peers in the same industry. It's clear from the latest estimates that Vista Group International's rate of growth is expected to accelerate meaningfully, with the forecast 22% annualised revenue growth to the end of 2021 noticeably faster than its historical growth of 10% p.a. over the past five years. Other similar companies in the industry (with analyst coverage) are also forecast to grow their revenue at 18% per year. Vista Group International is expected to grow at about the same rate as its industry, so it's not clear that we can draw any conclusions from its growth relative to competitors.
The Bottom Line
The most important thing to take away is that analysts are expecting Vista Group International to become unprofitable this year. Lamentably, they also downgraded their sales forecasts, but the business is still expected to grow at roughly the same rate as the market itself. 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 Vista Group International.
Still, the long-term prospects of the business are much more relevant than next year's earnings. At Simply Wall St, we have a full range of analyst estimates for Vista Group International going out to 2023, and you can see them free on our platform here.
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