Time To Worry? Analysts Just Downgraded Their Smart Wires Technology Ltd. (STO:GOGRID SDB) Outlook

The latest analyst coverage could presage a bad day for Smart Wires Technology Ltd. (STO:GOGRID SDB), with the analysts making across-the-board cuts to their statutory estimates that might leave shareholders a little shell-shocked. This report focused on revenue estimates, and it looks as though the consensus view of the business has become substantially more conservative.

Following the downgrade, the most recent consensus for Smart Wires Technology from its two analysts is for revenues of US$52m in 2022 which, if met, would be a huge 50% increase on its sales over the past 12 months. Losses are forecast to narrow 6.7% to US$0.60 per share. Yet before this consensus update, the analysts had been forecasting revenues of US$65m and losses of US$0.61 per share in 2022. So there's definitely been a change in sentiment in this update, with the analysts administering a substantial haircut to this year's revenue estimates, while at the same time holding losses per share steady.

Check out our latest analysis for Smart Wires Technology

the analysts have cut their price target 38% to US$1.73 per share, signalling that the declining revenue and ongoing losses are contributing to the lower valuation. 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. Currently, the most bullish analyst values Smart Wires Technology at US$26.96 per share, while the most bearish prices it at US$10.11. With such a wide range in price targets, the analysts are almost certainly betting on widely diverse outcomes for the underlying business. As a result it might not be possible to derive much meaning from the consensus price target, which is after all just an average of this wide range of estimates.

One way to get more context on these forecasts is to look at how they compare to both past performance, and how other companies in the same industry are performing. It's clear from the latest estimates that Smart Wires Technology's rate of growth is expected to accelerate meaningfully, with the forecast 126% annualised revenue growth to the end of 2022 noticeably faster than its historical growth of 0.7% over the past year. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to grow their revenue at 28% per year. Factoring in the forecast acceleration in revenue, it's pretty clear that Smart Wires Technology is expected to grow much faster than its industry.

The Bottom Line

Unfortunately, analysts also downgraded their revenue estimates, although our data indicates revenues are expected to perform better than the wider market. The consensus price target fell measurably, with analysts seemingly not reassured by recent business developments, leading to a lower estimate of Smart Wires Technology's future valuation. Overall, given the drastic downgrade to this year's forecasts, we'd be feeling a little more wary of Smart Wires Technology going forwards.

There might be good reason for analyst bearishness towards Smart Wires Technology, like a short cash runway. For more information, you can click here to discover this and the 3 other concerns we've identified.

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.