Things Look Grim For Co-Diagnostics, Inc. (NASDAQ:CODX) After Today's Downgrade

Market forces rained on the parade of Co-Diagnostics, Inc. (NASDAQ:CODX) shareholders today, when the analysts downgraded their forecasts for next year. Both revenue and earnings per share (EPS) forecasts went under the knife, suggesting the analysts have soured majorly on the business. Investors however, have been notably more optimistic about Co-Diagnostics recently, with the stock price up a notable 13% to US$13.94 in the past week. Whether the downgrade will have a negative impact on demand for shares is yet to be seen.

After the downgrade, the three analysts covering Co-Diagnostics are now predicting revenues of US$89m in 2021. If met, this would reflect a sizeable 87% improvement in sales compared to the last 12 months. Statutory earnings per share are presumed to surge 40% to US$1.65. Previously, the analysts had been modelling revenues of US$104m and earnings per share (EPS) of US$1.94 in 2021. It looks like analyst sentiment has declined substantially, with a measurable cut to revenue estimates and a real cut to earnings per share numbers as well.

View our latest analysis for Co-Diagnostics

It'll come as no surprise then, to learn that the analysts have cut their price target 13% to US$27.00. That's not the only conclusion we can draw from this data however, as some investors also like to consider the spread in estimates when evaluating analyst price targets. The most optimistic Co-Diagnostics analyst has a price target of US$31.00 per share, while the most pessimistic values it at US$20.00. Analysts definitely have varying views on the business, but the spread of estimates is not wide enough in our view to suggest that extreme outcomes could await Co-Diagnostics shareholders.

Taking a look at the bigger picture now, one of the ways we can understand these forecasts is to see how they compare to both past performance and industry growth estimates. It's pretty clear that there is an expectation that Co-Diagnostics' revenue growth will slow down substantially, with revenues to the end of 2021 expected to display 65% growth on an annualised basis. This is compared to a historical growth rate of 107% 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 9.0% annually. So it's pretty clear that, while Co-Diagnostics' 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 cut their earnings per share estimates, expecting a clear decline in business conditions. Unfortunately, analysts also downgraded their revenue estimates, although our data indicates revenues are expected to perform better 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.

After a downgrade like this, it's pretty clear that previous forecasts were too optimistic. What's more, we've spotted several possible issues with Co-Diagnostics' business, like concerns around earnings quality. For more information, you can click here to discover this and the 3 other flags we've identified.

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