Today is shaping up negative for TransAct Technologies Incorporated (NASDAQ:TACT) shareholders, with the covering analyst delivering a substantial negative revision to this year’s forecasts. Both revenue and earnings per share (EPS) estimates were cut sharply as the analyst factored in the latest outlook for the business, concluding that they were too optimistic previously. Surprisingly the share price has been buoyant, rising 17% to US$3.68 in the past 7 days. Whether the downgrade will have a negative impact on demand for shares is yet to be seen.
After the downgrade, the consensus from TransAct Technologies’s lone analyst is for revenues of US$36m in 2020, which would reflect a concerning 21% decline in sales compared to the last year of performance. After this downgrade, the company is anticipated to report a loss of US$0.44 in 2020, a sharp decline from a profit over the last year. Yet before this consensus update, the analyst had been forecasting revenues of US$48m and losses of US$0.10 per share in 2020. Ergo, there’s been a clear change in sentiment, with the analyst administering a notable cut to this year’s revenue estimates, while at the same time increasing their loss per share forecasts.
The consensus price target fell 71% to US$4.00, with the analyst clearly concerned about the company following the weaker revenue and earnings outlook.
These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the TransAct Technologies’s past performance and to peers in the same industry. Over the past five years, revenues have declined around 2.9% annually. Worse, forecasts are essentially predicting the decline to accelerate, with the estimate for a 21% decline in revenue next year. Compare this against analyst estimates for companies in the wider industry, which suggest that revenues (in aggregate) are expected to grow 6.6% next year. So while a broad number of companies are forecast to decline, unfortunately TransAct Technologies 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 the analyst 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. Given the scope of the downgrades, it would not be a surprise to see the market become more wary of the business.
There might be good reason for analyst bearishness towards TransAct Technologies, like its declining profit margins. Learn more, and discover the 4 other warning signs we’ve identified, for 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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