News Flash: 8 Analysts Think Cara Therapeutics, Inc. (NASDAQ:CARA) Earnings Are Under Threat

The latest analyst coverage could presage a bad day for Cara Therapeutics, Inc. (NASDAQ:CARA), with the analysts making across-the-board cuts to their statutory estimates that might leave shareholders a little shell-shocked. Revenue and earnings per share (EPS) forecasts were both revised downwards, with analysts seeing grey clouds on the horizon.

Following the downgrade, the current consensus from Cara Therapeutics' eight analysts is for revenues of US$53m in 2023 which - if met - would reflect a huge 27% increase on its sales over the past 12 months. Losses are expected to increase substantially, hitting US$1.75 per share. However, before this estimates update, the consensus had been expecting revenues of US$114m and US$0.80 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 Cara Therapeutics

The consensus price target fell 20% to US$18.50, implicitly signalling that lower earnings per share are a leading indicator for Cara Therapeutics' 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 Cara Therapeutics at US$28.00 per share, while the most bearish prices it at US$6.00. We would probably assign less value to the forecasts in this situation, because such a wide range of estimates could imply that the future of this business is difficult to value accurately. As a result it might not be possible to derive much meaning from the consensus price target, which is after all just an average of this wide range of estimates.

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. We would highlight that Cara Therapeutics' revenue growth is expected to slow, with the forecast 27% annualised growth rate until the end of 2023 being well below the historical 36% p.a. growth over the last five years. By way of comparison, the other companies in this industry with analyst coverage are forecast to grow their revenue at 4.9% annually. Even after the forecast slowdown in growth, it seems obvious that Cara Therapeutics is also expected to grow faster than the wider industry.

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 Cara Therapeutics. Unfortunately, analysts also downgraded their revenue estimates, although our data indicates revenues are expected to perform better than the wider market. With a serious cut to this year's expectations and a falling price target, we wouldn't be surprised if investors were becoming wary of Cara Therapeutics.

Even so, the longer term trajectory of the business is much more important for the value creation of shareholders. At Simply Wall St, we have a full range of analyst estimates for Cara Therapeutics going out to 2025, and you can see them 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.