Today is shaping up negative for Simulations Plus, Inc. (NASDAQ:SLP) shareholders, with the analysts delivering a substantial negative revision to next year's forecasts. Revenue and earnings per share (EPS) forecasts were both revised downwards, with the analysts seeing grey clouds on the horizon.
After this downgrade, Simulations Plus' three analysts are now forecasting revenues of US$52m in 2022. This would be a notable 13% improvement in sales compared to the last 12 months. Statutory earnings per share are anticipated to dip 4.3% to US$0.57 in the same period. Previously, the analysts had been modelling revenues of US$60m and earnings per share (EPS) of US$0.64 in 2022. Indeed, we can see that the analysts are a lot more bearish about Simulations Plus' prospects, administering a measurable cut to revenue estimates and slashing their EPS estimates to boot.
It'll come as no surprise then, to learn that the analysts have cut their price target 24% to US$64.67. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company's valuation. The most optimistic Simulations Plus analyst has a price target of US$75.00 per share, while the most pessimistic values it at US$54.00. This shows there is still some diversity in estimates, but analysts don't appear to be totally split on the stock as though it might be a success or failure situation.
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 Simulations Plus' revenue growth will slow down substantially, with revenues to the end of 2022 expected to display 10% growth on an annualised basis. This is compared to a historical growth rate of 18% over the past five years. Compare this against other companies (with analyst forecasts) in the industry, which are in aggregate expected to see revenue growth of 16% annually. So it's pretty clear that, while revenue growth is expected to slow down, the wider industry is also expected to grow faster than Simulations Plus.
The Bottom Line
The biggest issue in the new estimates is that analysts have reduced their earnings per share estimates, suggesting business headwinds lay ahead for Simulations Plus. 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.
Still, the long-term prospects of the business are much more relevant than next year's earnings. At Simply Wall St, we have a full range of analyst estimates for Simulations Plus going out to 2023, and you can see them free on our platform here.
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