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Analysts Just Made A Major Revision To Their Kala Pharmaceuticals, Inc. (NASDAQ:KALA) Revenue Forecasts

Simply Wall St
·3 min read

Today is shaping up negative for Kala Pharmaceuticals, Inc. (NASDAQ:KALA) 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.

Following the downgrade, the most recent consensus for Kala Pharmaceuticals from its seven analysts is for revenues of US$7.7m in 2020 which, if met, would be a huge 70% increase on its sales over the past 12 months. Losses are predicted to fall substantially, shrinking 20% to US$1.75. However, before this estimates update, the consensus had been expecting revenues of US$8.8m and US$1.71 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 making no real change to the loss per share numbers.

View our latest analysis for Kala Pharmaceuticals

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earnings-and-revenue-growth

The consensus price target rose 6.5% to US$21.00, seeming to imply that weaker revenue sentiment is not expected to have a major impact on the company'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 Kala Pharmaceuticals analyst has a price target of US$39.00 per share, while the most pessimistic values it at US$10.00. We would probably assign less value to the forecasts in this situation, because such a wide range of estimates could imply that the future of this business is difficult to value accurately. As a result it might not be possible to derive much meaning from the consensus price target, which is after all just an average of this wide range of estimates.

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. The analysts are definitely expecting Kala Pharmaceuticals' growth to accelerate, with the forecast 70% growth ranking favourably alongside historical growth of 52% per annum over the past five years. Compare this with other companies in the same industry, which are forecast to grow their revenue 6.7% next year. Factoring in the forecast acceleration in revenue, it's pretty clear that Kala Pharmaceuticals is expected to grow much faster than its industry.

The Bottom Line

Unfortunately, analysts also downgraded their revenue estimates, although our data indicates revenues are expected to perform better than the wider market. There was also an increase in the price target, suggesting that there is more optimism baked into the forecasts than there was previously. Given the stark change in sentiment, we'd understand if investors became more cautious on Kala Pharmaceuticals after today.

So things certainly aren't looking great, and you should also know that we've spotted some potential warning signs with Kala Pharmaceuticals, including major dilution from new stock issuance in the past year. Learn more, and discover the 2 other risks 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.

This article by Simply Wall St is general in nature. 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.

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