Zedge, Inc. (NYSEMKT:ZDGE) shareholders will have a reason to smile today, with the covering analyst making substantial upgrades to this year's statutory forecasts. The consensus estimated revenue numbers rose, with their view now clearly much more bullish on the company's business prospects. Investors have been pretty optimistic on Zedge too, with the stock up 60% to US$15.37 over the past week. Could this upgrade be enough to drive the stock even higher?
After this upgrade, Zedge's sole analyst is now forecasting revenues of US$17m in 2021. This would be a notable 20% improvement in sales compared to the last 12 months. Per-share earnings are expected to surge 27% to US$0.33. Previously, the analyst had been modelling revenues of US$13m and earnings per share (EPS) of US$0.13 in 2021. There has definitely been an improvement in perception recently, with the analyst substantially increasing both their earnings and revenue estimates.
With these upgrades, we're not surprised to see that the analyst has lifted their price target 26% to US$24.00 per share.
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. For example, we noticed that Zedge's rate of growth is expected to accelerate meaningfully, with revenues forecast to exhibit 43% growth to the end of 2021 on an annualised basis. That is well above its historical decline of 1.1% a year over the past five years. Compare this against analyst estimates for the broader industry, which suggest that (in aggregate) industry revenues are expected to grow 16% annually. Not only are Zedge's revenues expected to improve, it seems that the analyst is also expecting it to grow faster than the wider industry.
The Bottom Line
The most important thing to take away from this upgrade is that the analyst upgraded their earnings per share estimates for this year, expecting improving business conditions. They also upgraded their revenue estimates for this year, and sales are expected to grow faster than the wider market. There was also a nice increase in the price target, with the analyst apparently feeling that the intrinsic value of the business is improving. Seeing the dramatic upgrade to this year's forecasts, it might be time to take another look at Zedge.
Using these estimates as a starting point, we've run a discounted cash flow calculation (DCF) on Zedge that suggests the company could be somewhat undervalued. You can learn more about our valuation methodology 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 upgrading their estimates. So you may also wish to search this free list of stocks that insiders are buying.
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What are the risks and opportunities for Zedge?
Trading at 18.3% below our estimate of its fair value
Revenue is forecast to grow 30.35% per year
Earnings are forecast to decline by an average of 76.5% per year for the next 3 years
Does not have a meaningful market cap ($39M)
Shareholders have been diluted in the past year
Profit margins (27.3%) are lower than last year (42.4%)
Large one-off items impacting financial results
This article by Simply Wall St is general in nature. 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.
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