Things Look Grim For Sage Therapeutics, Inc. (NASDAQ:SAGE) After Today's Downgrade

Today is shaping up negative for Sage Therapeutics, Inc. (NASDAQ:SAGE) shareholders, with the analysts delivering a substantial negative revision to this year's forecasts. Both revenue and earnings per share (EPS) estimates were cut sharply as the analysts factored in the latest outlook for the business, concluding that they were too optimistic previously. Shares are up 6.3% to US$83.45 in the past week. We'd be curious to see if the downgrade is enough to reverse investor sentiment on the business.

Following the latest downgrade, the current consensus, from the 15 analysts covering Sage Therapeutics, is for revenues of US$23m in 2021, which would reflect a substantial 98% reduction in Sage Therapeutics' sales over the past 12 months. Following this this downgrade, earnings are now expected to tip over into loss-making territory, with the analysts forecasting losses of US$7.78 per share in 2021. Yet prior to the latest estimates, the analysts had been forecasting revenues of US$194m and losses of US$2.82 per share in 2021. So there's been quite a change-up of views after the recent consensus updates, with the analysts making a serious cut to their revenue forecasts while also expecting losses per share to increase.

Check out our latest analysis for Sage Therapeutics

There was no major change to the consensus price target of US$101, signalling that the business is performing roughly in line with expectations, despite lower earnings per share 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 Sage Therapeutics at US$187 per share, while the most bearish prices it at US$70.00. 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. 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.

These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the Sage Therapeutics' past performance and to peers in the same industry. We would highlight that sales are expected to reverse, with a forecast 98% annualised revenue decline to the end of 2021. That is a notable change from historical growth of 16,076% 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 20% per year. It's pretty clear that Sage Therapeutics' 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 Sage Therapeutics' revenues are expected to grow slower than the wider market. We're also surprised to see that the price target went unchanged. Still, deteriorating business conditions (assuming accurate forecasts!) can be a leading indicator for the stock price, so we wouldn't blame investors for being more cautious on Sage Therapeutics after the downgrade.

As you can see, the analysts clearly aren't bullish, and there might be good reason for that. We've identified some potential issues with Sage Therapeutics' financials, such as dilutive stock issuance over the past year. For more information, you can click here to discover this and the 1 other concern we've identified.

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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