These Analysts Just Made An Incredible Downgrade To Their Fathom Digital Manufacturing Corporation (NYSE:FATH) EPS Forecasts

The latest analyst coverage could presage a bad day for Fathom Digital Manufacturing Corporation (NYSE:FATH), with the analysts making across-the-board cuts to their statutory estimates that might leave shareholders a little shell-shocked. Both revenue and earnings per share (EPS) forecasts went under the knife, suggesting the analysts have soured majorly on the business. At US$0.77, shares are up 9.0% in the past 7 days. 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.

After the downgrade, the consensus from Fathom Digital Manufacturing's five analysts is for revenues of US$145m in 2023, which would reflect a definite 9.7% decline in sales compared to the last year of performance. The loss per share is anticipated to greatly reduce in the near future, narrowing 99% to US$0.17. However, before this estimates update, the consensus had been expecting revenues of US$170m and US$0.052 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 Fathom Digital Manufacturing

The consensus price target fell 75% to US$0.93, implicitly signalling that lower earnings per share are a leading indicator for Fathom Digital Manufacturing's valuation. 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 Fathom Digital Manufacturing at US$3.50 per share, while the most bearish prices it at US$0.70. We would probably assign less value to the forecasts in this situation, because such a wide range of estimates could imply that the future of this business is difficult to value accurately. With this in mind, we wouldn't rely too heavily on the consensus price target, as it is just an average and analysts clearly have some deeply divergent views on the business.

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. We would highlight that sales are expected to reverse, with a forecast 9.7% annualised revenue decline to the end of 2023. That is a notable change from historical growth of 46% over the last three years. Compare this with our data, which suggests that other companies in the same industry are, in aggregate, expected to see their revenue grow 5.0% per year. It's pretty clear that Fathom Digital Manufacturing's revenues are expected to perform substantially worse 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 Fathom Digital Manufacturing. Regrettably, they also downgraded their revenue estimates, and the latest forecasts imply the business will grow sales slower than the wider market. Given the scope of the downgrades, it would not be a surprise to see the market become more wary of the business.

There might be good reason for analyst bearishness towards Fathom Digital Manufacturing, like recent substantial insider selling. For more information, you can click here to discover this and the 3 other risks 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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