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The analyst covering GSE Systems, Inc. (NASDAQ:GVP) delivered a dose of negativity to shareholders today, by making a substantial revision to their statutory forecasts for this year. Both revenue and earnings per share (EPS) estimates were cut sharply as the analyst factored in the latest outlook for the business, concluding that they were too optimistic previously.
After this downgrade, GSE Systems' single analyst is now forecasting revenues of US$88m in 2020. This would be a modest 5.8% improvement in sales compared to the last 12 months. Losses are expected to turn into profits real soon, with the analyst forecasting US$0.08 in per-share earnings US$0.08. Previously, the analyst had been modelling revenues of US$105m and earnings per share (EPS) of US$0.10 in 2020. Indeed, we can see that the analyst is a lot more bearish about GSE Systems' prospects, administering a substantial drop in revenue estimates and slashing their EPS estimates to boot.
Another way we can view these estimates is in the context of the bigger picture, such as how the forecasts stack up against past performance, and whether forecasts are more or less bullish relative to other companies in the industry. It's pretty clear that there is an expectation that GSE Systems' revenue growth will slow down substantially, with revenues next year expected to grow 5.8%, compared to a historical growth rate of 16% over the past five years. By way of comparison, the other companies in this industry with analyst coverage are forecast to grow their revenue at 11% per year. Factoring in the forecast slowdown in growth, it seems obvious that GSE Systems is also expected to grow slower than other industry participants.
The Bottom Line
The biggest issue in the new estimates is that the analyst has reduced their earnings per share estimates, suggesting business headwinds lay ahead for GSE Systems. Unfortunately the analyst also downgraded their revenue estimates, and industry data suggests that GSE Systems' revenues are expected to grow slower than the wider market. After a cut like that, investors could be forgiven for thinking the analyst is a lot more bearish on GSE Systems, and a few readers might choose to steer clear of the stock.
Still, the long-term prospects of the business are much more relevant than next year's earnings. At least one analyst has provided forecasts out to 2021, which can be seen 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.
If you spot an error that warrants correction, please contact the editor at email@example.com. 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. Simply Wall St has no position in the stocks mentioned.
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