Market forces rained on the parade of Arcturus Therapeutics Holdings Inc. (NASDAQ:ARCT) shareholders today, when the analysts downgraded their forecasts for next year. This report focused on revenue estimates, and it looks as though the consensus view of the business has become substantially more conservative.
Following the downgrade, the current consensus from Arcturus Therapeutics Holdings' ten analysts is for revenues of US$97m in 2021 which - if met - would reflect a sizeable increase on its sales over the past 12 months. The loss per share is anticipated to greatly reduce in the near future, narrowing 59% to US$1.22. Prior to this update, the analysts had been forecasting revenues of US$189m and earnings per share (EPS) of US$0.12 in 2021. So we can see that the consensus has become notably more bearish on Arcturus Therapeutics Holdings' outlook with these numbers, making a sizeable cut to next year's revenue estimates. Furthermore, they expect the business to be loss-making next year, compared to their previous forecasts of a profit.
The consensus price target fell 8.1% to US$103, implicitly signalling that lower earnings per share are a leading indicator for Arcturus Therapeutics Holdings' valuation. There's another way to think about price targets though, and that's to look at the range of price targets put forward by analysts, because a wide range of estimates could suggest a diverse view on possible outcomes for the business. Currently, the most bullish analyst values Arcturus Therapeutics Holdings at US$172 per share, while the most bearish prices it at US$68.00. So we wouldn't be assigning too much credibility to analyst price targets in this case, because there are clearly some widely differing views on what kind of performance this business can generate. With this in mind, we wouldn't rely too heavily on the consensus price target, as it is just an average and analysts clearly have some deeply divergent views on the business.
One way to get more context on these forecasts is to look at how they compare to both past performance, and how other companies in the same industry are performing. The analysts are definitely expecting Arcturus Therapeutics Holdings' growth to accelerate, with the forecast 8x growth ranking favourably alongside historical growth of 9.6% per annum over the past five years. Compare this with other companies in the same industry, which are forecast to grow their revenue 21% next year. Factoring in the forecast acceleration in revenue, it's pretty clear that Arcturus Therapeutics Holdings is expected to grow much faster than its industry.
The Bottom Line
The most important thing to take away is that analysts are expecting Arcturus Therapeutics Holdings to become unprofitable next year. While analysts did downgrade their revenue estimates, these forecasts still imply revenues will perform better than the wider market. Furthermore, there was a cut to the price target, suggesting that the latest news has led to more pessimism about the intrinsic value of the business. Often, one downgrade can set off a daisy-chain of cuts, especially if an industry is in decline. So we wouldn't be surprised if the market became a lot more cautious on Arcturus Therapeutics Holdings after today.
So things certainly aren't looking great, and you should also know that we've spotted some potential warning signs with Arcturus Therapeutics Holdings, including major dilution from new stock issuance in the past year. Learn more, and discover the 1 other flag 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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