Need To Know: Analysts Just Made A Substantial Cut To Their Applied Optoelectronics, Inc. (NASDAQ:AAOI) Estimates

The analysts covering Applied Optoelectronics, Inc. (NASDAQ:AAOI) delivered a dose of negativity to shareholders today, by making a substantial revision to their statutory forecasts for this year. Revenue and earnings per share (EPS) forecasts were both revised downwards, with analysts seeing grey clouds on the horizon.

Following the latest downgrade, the current consensus, from the three analysts covering Applied Optoelectronics, is for revenues of US$202m in 2023, which would reflect a not inconsiderable 9.7% reduction in Applied Optoelectronics' sales over the past 12 months. Losses are predicted to fall substantially, shrinking 29% to US$1.63. Yet before this consensus update, the analysts had been forecasting revenues of US$244m and losses of US$1.07 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.

See our latest analysis for Applied Optoelectronics

The consensus price target fell 29% to US$3.75, implicitly signalling that lower earnings per share are a leading indicator for Applied Optoelectronics' 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 Applied Optoelectronics analyst has a price target of US$5.00 per share, while the most pessimistic values it at US$2.50. This is a fairly broad spread of estimates, suggesting that the analysts are forecasting a wide range of possible outcomes for the business.

One way to get more context on these forecasts is to look at how they compare to both past performance, and how other companies in the same industry are performing. One more thing stood out to us about these estimates, and it's the idea that Applied Optoelectronics' decline is expected to accelerate, with revenues forecast to fall at an annualised rate of 13% to the end of 2023. This tops off a historical decline of 6.8% a year 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 4.8% per year. So while a broad number of companies are forecast to grow, unfortunately Applied Optoelectronics is expected to see its sales affected worse than other companies in the 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. With a serious cut to this year's expectations and a falling price target, we wouldn't be surprised if investors were becoming wary of Applied Optoelectronics.

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 Applied Optoelectronics going out to 2024, 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.