Embracer Group AB (publ) (STO:EMBRAC B) Analysts Just Cut Their EPS Forecasts Substantially

By
Simply Wall St
Published
November 24, 2021
OM:EMBRAC B
Source: Shutterstock

One thing we could say about the analysts on Embracer Group AB (publ) (STO:EMBRAC B) - they aren't optimistic, having just made a major negative revision to their near-term (statutory) forecasts for the organization. Revenue and earnings per share (EPS) forecasts were both revised downwards, with the analysts seeing grey clouds on the horizon. Bidders are definitely seeing a different story, with the stock price of kr91.03 reflecting a 10% rise in the past week. With such a sharp increase, it seems brokers may have seen something that is not yet being priced in by the wider market.

Following the downgrade, the most recent consensus for Embracer Group from its eleven analysts is for revenues of kr15b in 2022 which, if met, would be a notable 17% increase on its sales over the past 12 months. Losses are supposed to balloon 127% to kr3.04 per share. However, before this estimates update, the consensus had been expecting revenues of kr17b and kr2.55 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.

View our latest analysis for Embracer Group

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OM:EMBRAC B Earnings and Revenue Growth November 25th 2021

The consensus price target was broadly unchanged at kr136, 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 Embracer Group, with the most bullish analyst valuing it at kr163 and the most bearish at kr70.00 per share. This is a fairly broad spread of estimates, suggesting that the analysts are forecasting a wide range of possible outcomes for the business.

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 Embracer Group's revenue growth will slow down substantially, with revenues to the end of 2022 expected to display 36% growth on an annualised basis. This is compared to a historical growth rate of 52% 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 17% annually. So it's pretty clear that, while Embracer Group's revenue growth is expected to slow, it's still expected to grow faster than the industry itself.

The Bottom Line

The most important thing to take away is that analysts increased their loss per share estimates for this year. 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 Embracer Group.

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 Embracer Group analysts - going out to 2024, and you can see them 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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