These Analysts Just Made An Downgrade To Their SiTime Corporation (NASDAQ:SITM) EPS Forecasts

Market forces rained on the parade of SiTime Corporation (NASDAQ:SITM) shareholders today, when the analysts downgraded their forecasts for next year. Both revenue and earnings per share (EPS) forecasts went under the knife, suggesting analysts have soured majorly on the business.

After the downgrade, the consensus from SiTime's five analysts is for revenues of US$243m in 2023, which would reflect a not inconsiderable 19% decline in sales compared to the last year of performance. After this downgrade, the company is anticipated to report a loss of US$0.53 in 2023, a sharp decline from a profit over the last year. Prior to this update, the analysts had been forecasting revenues of US$331m and earnings per share (EPS) of US$1.48 in 2023. There looks to have been a major change in sentiment regarding SiTime's prospects, with a sizeable cut to revenues and the analysts now forecasting a loss instead of a profit.

Our analysis indicates that SITM is potentially overvalued!

The consensus price target fell 40% to US$115, with the analysts clearly concerned about the company following the weaker revenue and earnings outlook. That's not the only conclusion we can draw from this data however, as some investors also like to consider the spread in estimates when evaluating analyst price targets. Currently, the most bullish analyst values SiTime at US$125 per share, while the most bearish prices it at US$96.00. This is a very narrow spread of estimates, implying either that SiTime is an easy company to value, or - more likely - the analysts are relying heavily on some key assumptions.

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 15% by the end of 2023. This indicates a significant reduction from annual growth of 34% over the last five years. Compare this with our data, which suggests that other companies in the same industry are, in aggregate, expected to see their revenue grow 7.1% per year. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - SiTime is expected to lag the wider industry.

The Bottom Line

The most important thing to take away is that analysts are expecting SiTime to become unprofitable next year. Unfortunately analysts also downgraded their revenue estimates, and industry data suggests that SiTime's revenues are expected to grow slower than the wider market. Given the scope of the downgrades, it would not be a surprise to see the market become more wary of the business.

That said, the analysts might have good reason to be negative on SiTime, given recent substantial insider selling. Learn more, and discover the 2 other warning signs 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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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.