Market forces rained on the parade of SkyWater Technology, Inc. (NASDAQ:SKYT) shareholders today, when the analysts downgraded their forecasts for this year. There was a fairly draconian cut to their revenue estimates, perhaps an implicit admission that previous forecasts were much too optimistic. Surprisingly the share price has been buoyant, rising 33% to US$22.52 in the past 7 days. It will be interesting to see if the downgrade has an impact on buying demand for the company's shares.
Following the downgrade, the latest consensus from SkyWater Technology's four analysts is for revenues of US$177m in 2021, which would reflect a notable 8.9% improvement in sales compared to the last 12 months. Losses are expected to increase substantially, hitting US$0.73 per share. Yet prior to the latest estimates, the analysts had been forecasting revenues of US$211m and losses of US$0.52 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.
The consensus price target fell 5.8% to US$28.25, implicitly signalling that lower earnings per share are a leading indicator for SkyWater Technology's valuation. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. The most optimistic SkyWater Technology analyst has a price target of US$40.00 per share, while the most pessimistic values it at US$25.00. These price targets show that analysts do have some differing views on the business, but the estimates do not vary enough to suggest to us that some are betting on wild success or utter failure.
Another way we can view these estimates is in the context of the bigger picture, such as how the forecasts stack up against past performance, and whether forecasts are more or less bullish relative to other companies in the industry. We can infer from the latest estimates that forecasts expect a continuation of SkyWater Technology'shistorical trends, as the 19% annualised revenue growth to the end of 2021 is roughly in line with the 22% annual revenue growth over the past year. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to see their revenues grow 8.4% per year. So although SkyWater Technology is expected to maintain its revenue growth rate, it's definitely expected to grow faster than the wider industry.
The Bottom Line
The most important thing to note from this downgrade is that the consensus increased its forecast losses this year, suggesting all may not be well at SkyWater Technology. While analysts did downgrade their revenue estimates, these forecasts still imply revenues will perform better than the wider market. The consensus price target fell measurably, with analysts seemingly not reassured by recent business developments, leading to a lower estimate of SkyWater Technology's future valuation. Given the stark change in sentiment, we'd understand if investors became more cautious on SkyWater Technology after today.
Still, the long-term prospects of the business are much more relevant than next year's earnings. At Simply Wall St, we have a full range of analyst estimates for SkyWater Technology going out to 2023, and you can see them free on our platform here.
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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