Today is shaping up negative for Invitae Corporation (NYSE:NVTA) shareholders, with the analysts delivering a substantial negative revision to next year's forecasts. Revenue and earnings per share (EPS) forecasts were both revised downwards, with analysts seeing grey clouds on the horizon.
Following the downgrade, the latest consensus from Invitae's eight analysts is for revenues of US$450m in 2021, which would reflect a sizeable 83% improvement in sales compared to the last 12 months. Losses are predicted to fall substantially, shrinking 58% to US$1.63. However, before this estimates update, the consensus had been expecting revenues of US$514m and US$1.47 per share in losses. 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.
The consensus price target lifted 6.3% to US$47.04, clearly signalling that the weaker revenue and EPS outlook are not expected to weigh on the stock over the longer term. The consensus price target is just an average of individual analyst targets, so - it could be handy to see how wide the range of underlying estimates is. Currently, the most bullish analyst values Invitae at US$60.00 per share, while the most bearish prices it at US$37.25. 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 Invitae shareholders.
Taking a look at the bigger picture now, one of the ways we can understand these forecasts is to see how they compare to both past performance and industry growth estimates. The analysts are definitely expecting Invitae's growth to accelerate, with the forecast 83% growth ranking favourably alongside historical growth of 52% per annum over the past five years. Compare this with other companies in the same industry, which are forecast to grow their revenue 20% next year. Factoring in the forecast acceleration in revenue, it's pretty clear that Invitae is expected to grow much faster than its industry.
The Bottom Line
The most important thing to take away is that analysts increased their loss per share estimates for next year. Unfortunately, analysts also downgraded their revenue estimates, although our data indicates revenues are expected to perform better than the wider market. The increasing price target is not intuitively what we would expect to see, given these downgrades, and we'd suggest shareholders revisit their investment thesis before making a decision.
After a downgrade like this, it's pretty clear that previous forecasts were too optimistic. What's more, we've spotted several possible issues with Invitae's business, like recent substantial insider selling. Learn more, and discover the 2 other risks we've identified, for 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.
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