These Analysts Just Made A Massive Downgrade To Their Digital Media Solutions, Inc. (NYSE:DMS) EPS Forecasts

Today is shaping up negative for Digital Media Solutions, Inc. (NYSE:DMS) shareholders, with the analysts delivering a substantial negative revision to this year's forecasts. Revenue and earnings per share (EPS) forecasts were both revised downwards, with the analysts seeing grey clouds on the horizon. Investors however, have been notably more optimistic about Digital Media Solutions recently, with the stock price up a remarkable 18% to US$1.75 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.

After the downgrade, the consensus from Digital Media Solutions' three analysts is for revenues of US$391m in 2022, which would reflect a chunky 8.3% decline in sales compared to the last year of performance. Losses are supposed to balloon 107% to US$0.54 per share. Yet prior to the latest estimates, the analysts had been forecasting revenues of US$444m and losses of US$0.26 per share in 2022. 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.

Check out our latest analysis for Digital Media Solutions

The consensus price target fell 23% to US$4.00, implicitly signalling that lower earnings per share are a leading indicator for Digital Media Solutions' valuation. 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. There are some variant perceptions on Digital Media Solutions, with the most bullish analyst valuing it at US$6.00 and the most bearish at US$3.00 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. We would highlight that sales are expected to reverse, with a forecast 16% annualised revenue decline to the end of 2022. That is a notable change from historical growth of 10% over the last year. Compare this with our data, which suggests that other companies in the same industry are, in aggregate, expected to see their revenue grow 3.0% per year. It's pretty clear that Digital Media Solutions' revenues are expected to perform substantially worse than the wider industry.

The Bottom Line

The most important thing to take away is that analysts increased their loss per share estimates for this year. Unfortunately analysts also downgraded their revenue estimates, and industry data suggests that Digital Media Solutions' revenues are expected to grow 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.

That said, the analysts might have good reason to be negative on Digital Media Solutions, given dilutive stock issuance over the past year. Learn more, and discover the 1 other risk we've identified, for 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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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.