The Consensus EPS Estimates For Inspire Medical Systems, Inc. (NYSE:INSP) Just Fell Dramatically

One thing we could say about the analysts on Inspire Medical Systems, Inc. (NYSE:INSP) - they aren't optimistic, having just made a major negative revision to their near-term (statutory) forecasts for the organization. Both revenue and earnings per share (EPS) estimates were cut sharply as analysts factored in the latest outlook for the business, concluding that they were too optimistic previously. Surprisingly the share price has been buoyant, rising 13% to US$70.06 in the past 7 days. Whether the downgrade will have a negative impact on demand for shares is yet to be seen.

Following the downgrade, the most recent consensus for Inspire Medical Systems from its nine analysts is for revenues of US$90m in 2020 which, if met, would be a notable 9.7% increase on its sales over the past 12 months. Per-share losses are expected to explode, reaching US$2.24 per share. However, before this estimates update, the consensus had been expecting revenues of US$108m and US$1.99 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.

See our latest analysis for Inspire Medical Systems

The consensus price target was broadly unchanged at US$75.22, perhaps implicitly signalling that the weaker earnings outlook is not expected to have a long-term impact on the valuation. 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. There are some variant perceptions on Inspire Medical Systems, with the most bullish analyst valuing it at US$88.00 and the most bearish at US$42.00 per share. Note the wide gap in analyst price targets? This implies to us that there is a fairly broad range of possible scenarios for the underlying business.

Another way we can view these estimates is in the context of the bigger picture, such as how the forecasts stack up against past performance, and whether forecasts are more or less bullish relative to other companies in the industry. It's pretty clear that there is an expectation that Inspire Medical Systems' revenue growth will slow down substantially, with revenues next year expected to grow 9.7%, compared to a historical growth rate of 46% over the past three years. By way of comparison, the other companies in this industry with analyst coverage are forecast to grow their revenue at 15% per year. So it's pretty clear that, while revenue growth is expected to slow down, the wider industry is also expected to grow faster than Inspire Medical Systems.

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 Inspire Medical Systems. Regrettably, they also downgraded their revenue estimates, and the latest forecasts imply the business will grow sales slower than the wider market. We're also surprised to see that the price target went unchanged. Still, deteriorating business conditions (assuming accurate forecasts!) can be a leading indicator for the stock price, so we wouldn't blame investors for being more cautious on Inspire Medical Systems after the downgrade.

So things certainly aren't looking great, and you should also know that we've spotted some potential warning signs with Inspire Medical Systems, including major dilution from new stock issuance in the past year. Learn more, and discover the 2 other concerns we've identified, for free on our platform here.

Another way to search for interesting companies that could be reaching an inflection point is to track whether management are buying or selling, with our free list of growing companies that insiders are buying.

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