Earnings Update: Here's Why Analysts Just Lifted Their EROAD Limited (NZSE:ERD) Price Target To NZ$5.32

Investors in EROAD Limited (NZSE:ERD) had a good week, as its shares rose 5.0% to close at NZ$4.62 following the release of its half-year results. It was a workmanlike result, with revenues of NZ$46m coming in 4.8% ahead of expectations, and statutory earnings per share of NZ$0.015, in line with analyst appraisals. This is an important time for investors, as they can track a company's performance in its report, look at what experts are forecasting for next year, and see if there has been any change to expectations for the business. We've gathered the most recent statutory forecasts to see whether the analysts have changed their earnings models, following these results.

View our latest analysis for EROAD

Following the latest results, EROAD's three analysts are now forecasting revenues of NZ$93.5m in 2021. This would be a credible 5.6% improvement in sales compared to the last 12 months. Statutory earnings per share are predicted to climb 19% to NZ$0.036. Before this earnings announcement, the analysts had been modelling revenues of NZ$90.9m and losses of NZ$0.007 per share in 2021. So we can see there's been a pretty clear upgrade to expectations following the latest results, with a small lift in revenues expected to lead to profitability earlier than previously forecast.

With these upgrades, we're not surprised to see that the analysts have lifted their price target 14% to NZ$5.32per share. 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. Currently, the most bullish analyst values EROAD at NZ$6.00 per share, while the most bearish prices it at NZ$4.64. With such a narrow range of valuations, the analysts apparently share similar views on what they think the business is worth.

Of course, another way to look at these forecasts is to place them into context against the industry itself. It's pretty clear that there is an expectation that EROAD's revenue growth will slow down substantially, with revenues next year expected to grow 5.6%, compared to a historical growth rate of 28% over the past five years. By way of comparison, the other companies in this industry with analyst coverage are forecast to grow their revenue at 13% per year. Factoring in the forecast slowdown in growth, it seems obvious that EROAD is also expected to grow slower than other industry participants.

The Bottom Line

The most important thing to take away is that there's been a clear step-change in belief around the business' prospects, with the analysts now expecting EROAD to become profitable next year. Fortunately, they also upgraded their revenue estimates, although our data indicates sales are expected to perform worse than the wider industry. We note an upgrade to the price target, suggesting that the analysts believes the intrinsic value of the business is likely to improve over time.

With that in mind, we wouldn't be too quick to come to a conclusion on EROAD. Long-term earnings power is much more important than next year's profits. We have forecasts for EROAD going out to 2024, and you can see them free on our platform here.

Even so, be aware that EROAD is showing 3 warning signs in our investment analysis , and 1 of those is a bit concerning...

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