What You Need To Know About The Smith Micro Software, Inc. (NASDAQ:SMSI) Analyst Downgrade Today

Today is shaping up negative for Smith Micro Software, Inc. (NASDAQ:SMSI) shareholders, with the analysts delivering a substantial negative revision to this year's forecasts. There was a fairly draconian cut to their revenue estimates, perhaps an implicit admission that previous forecasts were much too optimistic.

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Following the downgrade, the latest consensus from Smith Micro Software's dual analysts is for revenues of US$19m in 2025, which would reflect a satisfactory 3.2% improvement in sales compared to the last 12 months. The loss per share is anticipated to greatly reduce in the near future, narrowing 65% to US$0.52. However, before this estimates update, the consensus had been expecting revenues of US$22m and US$0.27 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.

See our latest analysis for Smith Micro Software

The consensus price target lifted 13% to US$4.50, clearly signalling that the weaker revenue and EPS outlook are not expected to weigh on the stock over the longer term.

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. One thing stands out from these estimates, which is that Smith Micro Software is forecast to grow faster in the future than it has in the past, with revenues expected to display 6.4% annualised growth until the end of 2025. If achieved, this would be a much better result than the 17% annual decline over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to see their revenue grow 13% per year. Although Smith Micro Software's revenues are expected to improve, it seems that the analysts are still bearish on the business, forecasting it to grow slower than the broader 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 Smith Micro Software. Unfortunately analysts also downgraded their revenue estimates, and industry data suggests that Smith Micro Software's revenues are expected to grow slower than the wider market. There was also a nice increase in the price target, with analysts apparently feeling that the intrinsic value of the business is improving. Given the stark change in sentiment, we'd understand if investors became more cautious on Smith Micro Software after today.

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 Smith Micro Software's business, like major dilution from new stock issuance in the past year. For more information, you can click here to discover this and the 3 other risks we've identified.

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 with high insider ownership.

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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.