Stitch Fix, Inc. (NASDAQ:SFIX) Analysts Just Cut Their EPS Forecasts Substantially

Today is shaping up negative for Stitch Fix, Inc. (NASDAQ:SFIX) shareholders, with the analysts delivering a substantial negative revision to this year's forecasts. Both revenue and earnings per share (EPS) forecasts went under the knife, suggesting analysts have soured majorly on the business.

Following the downgrade, the consensus from 17 analysts covering Stitch Fix is for revenues of US$1.8b in 2023, implying a not inconsiderable 16% decline in sales compared to the last 12 months. Losses are supposed to balloon 98% to US$1.64 per share. Yet before this consensus update, the analysts had been forecasting revenues of US$2.1b and losses of US$1.41 per share in 2023. 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 Stitch Fix

The consensus price target fell 18% to US$5.94, implicitly signalling that lower earnings per share are a leading indicator for Stitch Fix's valuation. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company's valuation. The most optimistic Stitch Fix analyst has a price target of US$12.00 per share, while the most pessimistic values it at US$3.00. With such a wide range in price targets, the analysts are almost certainly betting on widely diverse outcomes for the underlying business. 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.

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. These estimates imply that sales are expected to slow, with a forecast annualised revenue decline of 16% by the end of 2023. This indicates a significant reduction from annual growth of 17% over the last five years. By contrast, our data suggests that other companies (with analyst coverage) in the same industry are forecast to see their revenue grow 13% annually for the foreseeable future. It's pretty clear that Stitch Fix's 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. Regrettably, they also downgraded their revenue estimates, and the latest forecasts imply the business will grow sales slower than the wider market. After such a stark change in sentiment from analysts, we'd understand if readers now felt a bit wary of Stitch Fix.

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 Stitch Fix going out to 2025, 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.

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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.