A week ago, Avalara, Inc. (NYSE:AVLR) came out with a strong set of first-quarter numbers that could potentially lead to a re-rate of the stock. Results overall were credible, with revenues arriving 3.0% better than analyst forecasts at US$111m. Higher revenues also resulted in lower statutory losses, which were US$0.20 per share, some 3.0% smaller than the analysts expected. The analysts typically update their forecasts at each earnings report, and we can judge from their estimates whether their view of the company has changed or if there are any new concerns to be aware of. We've gathered the most recent statutory forecasts to see whether the analysts have changed their earnings models, following these results.
Taking into account the latest results, the current consensus from Avalara's twelve analysts is for revenues of US$460.1m in 2020, which would reflect a notable 13% increase on its sales over the past 12 months. Losses are expected to increase slightly, to US$0.79 per share. Before this latest report, the consensus had been expecting revenues of US$463.5m and US$0.80 per share in losses.
The consensus price target rose 13% to US$113, with the analysts increasing their valuations as the business executes in line with forecasts. The consensus price target is just an average of individual analyst targets, so - it could be handy to see how wide the range of underlying estimates is. Currently, the most bullish analyst values Avalara at US$120 per share, while the most bearish prices it at US$100.00. The narrow spread of estimates could suggest that the business' future is relatively easy to value, or thatthe analysts have a strong view on its prospects.
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. It's pretty clear that there is an expectation that Avalara's revenue growth will slow down substantially, with revenues next year expected to grow 13%, compared to a historical growth rate of 28% over the past three years. Juxtapose this against the other companies in the industry with analyst coverage, which are forecast to grow their revenues (in aggregate) 12% next year. So it's pretty clear that, while Avalara's revenue growth is expected to slow, it's expected to grow roughly in line with the industry.
The Bottom Line
The most obvious conclusion is that the analysts made no changes to their forecasts for a loss next year. Happily, there were no real changes to sales forecasts, with the business still expected to grow in line with the overall industry. There was also a nice increase in the price target, with the analysts clearly feeling that the intrinsic value of the business is improving.
Keeping that in mind, we still think that the longer term trajectory of the business is much more important for investors to consider. We have forecasts for Avalara going out to 2022, and you can see them free on our platform here.
That said, it's still necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with Avalara , and understanding them should be part of your investment process.
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