Time To Worry? Analysts Just Downgraded Their Verrica Pharmaceuticals Inc. (NASDAQ:VRCA) Outlook

Today is shaping up negative for Verrica Pharmaceuticals Inc. (NASDAQ:VRCA) shareholders, with the analysts delivering a substantial negative revision to next year's forecasts. 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 Verrica Pharmaceuticals' six analysts is for revenues of US$22m in 2022 which - if met - would reflect a substantial 86% increase on its sales over the past 12 months. Losses are supposed to balloon 49% to US$2.09 per share. Yet prior to the latest estimates, the analysts had been forecasting revenues of US$25m and losses of US$2.00 per share in 2022. Ergo, there's been a clear change in sentiment, with the analysts administering a notable cut to next year's revenue estimates, while at the same time increasing their loss per share forecasts.

View our latest analysis for Verrica Pharmaceuticals

There was no major change to the consensus price target of US$19.50, signalling that the business is performing roughly in line with expectations, despite lower earnings per share forecasts. 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. The most optimistic Verrica Pharmaceuticals analyst has a price target of US$25.00 per share, while the most pessimistic values it at US$16.00. Analysts definitely have varying views on the business, but the spread of estimates is not wide enough in our view to suggest that extreme outcomes could await Verrica Pharmaceuticals shareholders.

Of course, another way to look at these forecasts is to place them into context against the industry itself. It's pretty clear that there is an expectation that Verrica Pharmaceuticals' revenue growth will slow down substantially, with revenues to the end of 2022 expected to display 64% growth on an annualised basis. This is compared to a historical growth rate of 105% over the past five years. Juxtapose this against the other companies in the industry with analyst coverage, which are forecast to grow their revenues (in aggregate) 3.9% per year. So it's pretty clear that, while Verrica Pharmaceuticals' revenue growth is expected to slow, it's still expected to grow faster than the industry itself.

The Bottom Line

The most important thing to take away is that analysts increased their loss per share estimates for next year. While analysts did downgrade their revenue estimates, these forecasts still imply revenues will perform better than the wider market. Given the stark change in sentiment, we'd understand if investors became more cautious on Verrica Pharmaceuticals after today.

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 Verrica Pharmaceuticals going out to 2023, and you can see them free on our platform here.

Another way to search for interesting companies that could be reaching an inflection point is to track whether management are buying or selling, with our free list of growing companies that insiders are buying.

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.