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One thing we could say about the analysts on Argan, Inc. (NYSE:AGX) - they aren't optimistic, having just made a major negative revision to their near-term (statutory) forecasts for the organization. Both revenue and earnings per share (EPS) forecasts went under the knife, suggesting the analysts have soured majorly on the business.
Following the downgrade, the most recent consensus for Argan from its dual analysts is for revenues of US$630m in 2022 which, if met, would be a sizeable 84% increase on its sales over the past 12 months. Statutory earnings per share are presumed to bounce 435% to US$2.43. Previously, the analysts had been modelling revenues of US$783m and earnings per share (EPS) of US$3.89 in 2022. Indeed, we can see that the analysts are a lot more bearish about Argan's prospects, administering a measurable cut to revenue estimates and slashing their EPS estimates to boot.
Despite the cuts to forecast earnings, there was no real change to the US$60.50 price target, showing that the analysts don't think the changes have a meaningful impact on its intrinsic value. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. There are some variant perceptions on Argan, with the most bullish analyst valuing it at US$61.00 and the most bearish at US$60.00 per share. This is a very narrow spread of estimates, implying either that Argan is an easy company to value, or - more likely - the analysts are relying heavily on some key assumptions.
Looking at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up against both past performance and industry growth estimates. For example, we noticed that Argan's rate of growth is expected to accelerate meaningfully, with revenues forecast to grow 84%, well above its historical decline of 13% a year over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in the industry are forecast to see their revenue grow 5.7% per year. So it looks like Argan is expected to grow faster than its competitors, at least for a while.
The Bottom Line
The most important thing to take away is that analysts cut their earnings per share estimates, expecting a clear decline in business conditions. While analysts did downgrade their revenue estimates, these forecasts still imply revenues will perform better than the wider market. The lack of change in the price target is puzzling in light of the downgrade but, with a serious decline expected next year, we wouldn't be surprised if investors were a bit wary of Argan.
In light of the downgrade, our automated discounted cash flow valuation tool suggests that Argan could now be moderately overvalued. Learn why, and examine the assumptions that underpin our valuation by visiting our free platform here to learn more about our valuation approach.
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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