Analysts might have been a bit too bullish on Ra Medical Systems, Inc. (NYSE:RMED), given that the company fell short of expectations when it released its yearly results last week. The numbers were fairly weak, with sales of US$7.2m missing analyst predictions by 8.4%, and (statutory) losses of US$4.33 per share being slightly larger than what analysts had expected. This is an important time for investors, as they can track a company's performance in its report, look at what top analysts are forecasting for next year, and see if there has been any change to expectations for the business. We've gathered the most recent statutory forecasts to see whether analysts have changed their earnings models, following these results.
Taking into account the latest results, the latest consensus from Ra Medical Systems's three analysts is for revenues of US$8.48m in 2020, which would reflect a solid 18% improvement in sales compared to the last 12 months. Per-share statutory losses are expected to explode, reaching US$1.63 per share. Yet prior to the latest earnings, analysts had been forecasting revenues of US$10.8m and losses of US$2.23 per share in 2020. So there's been quite a change-up of views after the latest results, with analysts making a serious cut to their revenue forecasts while also granting a very substantial lift in to the earnings per share numbers.
The consensus price target fell 7.7% to US$2.00, with the dip in revenue estimates clearly souring analyst sentiment, despite the forecast reduction in losses. The consensus price target just an average of individual analyst targets, so - considering that the price target changed, it would be handy to see how wide the range of underlying estimates is. Currently, the most bullish analyst values Ra Medical Systems at US$3.00 per share, while the most bearish prices it at US$1.50. Note the wide gap in analyst price targets? This implies to us that there is a fairly broad range of possible scenarios for the underlying business.
Another way to assess these estimates is by comparing them to past performance, and seeing whether analysts are more or less bullish relative to other companies in the market. Analysts are definitely expecting Ra Medical Systems's growth to accelerate, with the forecast 18% growth ranking favourably alongside historical growth of 11% per annum over the past three years. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to grow their revenue at 7.8% per year. It seems obvious that, while the growth outlook is brighter than the recent past, analysts also expect Ra Medical Systems to grow faster than the wider market.
The Bottom Line
The most important thing to take away is that analysts increased their loss per share estimates for next year. Regrettably, they also downgraded their revenue estimates, but the latest forecasts still imply the business will grow faster than the wider market. Still, earnings per share are more important to value creation for shareholders. The consensus price target fell measurably, with analysts seemingly not reassured by the latest results, leading to a lower estimate of Ra Medical Systems's future valuation.
With that in mind, we wouldn't be too quick to come to a conclusion on Ra Medical Systems. Long-term earnings power is much more important than next year's profits. We have forecasts for Ra Medical Systems going out to 2021, and you can see them free on our platform here.
Another thing to consider is whether management and directors have been buying or selling stock recently. We provide an overview of all open market stock trades for the last twelve months on our platform, here.
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