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As you might know, The Valens Company Inc. (TSE:VLNS) recently reported its quarterly numbers. Revenues were in line with expectations, at CA$18m, while statutory losses ballooned to CA$0.06 per share. Earnings are an important time for investors, as they can track a company's performance, look at what the analysts are forecasting for next year, and see if there's been a change in sentiment towards the company. We thought readers would find it interesting to see the analysts latest (statutory) post-earnings forecasts for next year.
After the latest results, the consensus from Valens' eight analysts is for revenues of CA$91.8m in 2020, which would reflect a measurable 5.1% decline in sales compared to the last year of performance. The company is forecast to report a statutory loss of CA$0.035 in 2020, a sharp decline from a profit over the last year. Yet prior to the latest earnings, the analysts had been anticipated revenues of CA$115.0m and earnings per share (EPS) of CA$0.11 in 2020. There looks to have been a major change in sentiment regarding Valens' prospects following the latest results, with a large cut to revenues and the analysts now forecasting a loss instead of a profit.
The average price target fell 19% to CA$5.06, implicitly signalling that lower earnings per share are a leading indicator for Valens' valuation. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company's valuation. Currently, the most bullish analyst values Valens at CA$6.50 per share, while the most bearish prices it at CA$4.00. There are definitely some different views on the stock, but the range of estimates is not wide enough as to imply that the situation is unforecastable, in our view.
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. These estimates imply that sales are expected to slow, with a forecast revenue decline of 5.1%, a significant reduction from annual growth of 137% over the last three years. Compare this with our data, which suggests that other companies in the same industry are, in aggregate, expected to see their revenue grow 33% next year. It's pretty clear that Valens' revenues are expected to perform substantially worse than the wider industry.
The Bottom Line
The most important thing to take away is that the analysts are expecting Valens to become unprofitable next year. Unfortunately, they also downgraded their revenue estimates, and our data indicates revenues are expected to perform worse than the wider industry. Even so, earnings per share are more important to the intrinsic value of the business. Furthermore, the analysts also cut their price targets, suggesting that the latest news has led to greater pessimism about the intrinsic value of the business.
With that in mind, we wouldn't be too quick to come to a conclusion on Valens. Long-term earnings power is much more important than next year's profits. At Simply Wall St, we have a full range of analyst estimates for Valens going out to 2024, and you can see them free on our platform here..
And what about risks? Every company has them, and we've spotted 4 warning signs for Valens (of which 1 makes us a bit uncomfortable!) you should know about.
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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