Earnings Release: Here's Why Analysts Cut Their DermTech, Inc. (NASDAQ:DMTK) Price Target To US$23.80

One of the biggest stories of last week was how DermTech, Inc. (NASDAQ:DMTK) shares plunged 33% in the week since its latest quarterly results, closing yesterday at US$5.56. Revenues of US$4.2m fell short of estimates by 12%, but statutory losses were relatively mild, coming in 2.4% smaller than the analysts expected, at US$0.99 per share. This is an important time for investors, as they can track a company's performance in its report, look at what experts are forecasting for next year, and see if there has been any change to expectations for the business. So we gathered the latest post-earnings forecasts to see what estimates suggest is in store for next year.

Check out our latest analysis for DermTech

Following the latest results, DermTech's six analysts are now forecasting revenues of US$23.7m in 2022. This would be a huge 82% improvement in sales compared to the last 12 months. Losses are forecast to balloon 32% to US$4.09 per share. Before this earnings announcement, the analysts had been modelling revenues of US$23.8m and losses of US$4.07 per share in 2022.

The analysts trimmed their valuations, with the average price target falling 20% to US$23.80, with the ongoing losses seemingly weighing on sentiment, despite no real changes to the earnings forecasts. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. Currently, the most bullish analyst values DermTech at US$48.00 per share, while the most bearish prices it at US$19.00. We would probably assign less value to the analyst 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 a great idea to make decisions based on the consensus price target, which is after all just an average of this wide range of estimates.

Looking at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up against both past performance and industry growth estimates. The analysts are definitely expecting DermTech's growth to accelerate, with the forecast 230% annualised growth to the end of 2022 ranking favourably alongside historical growth of 60% per annum over the past three years. Compare this with other companies in the same industry, which are forecast to grow their revenue 15% annually. Factoring in the forecast acceleration in revenue, it's pretty clear that DermTech is expected to grow much faster than its industry.

The Bottom Line

The most important thing to take away is that the analysts reconfirmed their loss per share estimates for next year. Fortunately, they also reconfirmed their revenue numbers, suggesting sales are tracking in line with expectations - and our data suggests that revenues are expected to grow faster than the wider industry. The consensus price target fell measurably, with the analysts seemingly not reassured by the latest results, leading to a lower estimate of DermTech's future valuation.

With that in mind, we wouldn't be too quick to come to a conclusion on DermTech. Long-term earnings power is much more important than next year's profits. At Simply Wall St, we have a full range of analyst estimates for DermTech going out to 2024, and you can see them free on our platform here..

That said, it's still necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with DermTech , and understanding these should be part of your investment process.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.