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Downgrade: Here's How Analysts See Digital Media Solutions, Inc. (NYSE:DMS) Performing In The Near Term

The analysts covering Digital Media Solutions, Inc. (NYSE:DMS) 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) forecasts went under the knife, suggesting analysts have soured majorly on the business. Investors however, have been notably more optimistic about Digital Media Solutions recently, with the stock price up a notable 18% to US$1.75 in the past week. It will be interesting to see if the downgrade has an impact on buying demand for the company's shares.

Following the latest downgrade, the three analysts covering Digital Media Solutions provided consensus estimates of US$391m revenue in 2022, which would reflect a definite 8.3% decline on its sales over the past 12 months. Losses are supposed to balloon 107% to US$0.54 per share. However, before this estimates update, the consensus had been expecting revenues of US$444m and US$0.26 per share in losses. So there's been quite a change-up of views after the recent consensus updates, with the analysts making a serious cut to their revenue forecasts while also expecting losses per share to increase.

Check out our latest analysis for Digital Media Solutions

earnings-and-revenue-growth
earnings-and-revenue-growth

The consensus price target fell 23% to US$4.00, with the analysts clearly concerned about the company following the weaker revenue and earnings outlook. That's not the only conclusion we can draw from this data however, as some investors also like to consider the spread in estimates when evaluating analyst price targets. The most optimistic Digital Media Solutions analyst has a price target of US$6.00 per share, while the most pessimistic values it at US$3.00. This is a fairly broad spread of estimates, suggesting that the analysts are forecasting a wide range of possible outcomes for the business.

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. These estimates imply that sales are expected to slow, with a forecast annualised revenue decline of 16% by the end of 2022. This indicates a significant reduction from annual growth of 10% over the last year. Compare this with our data, which suggests that other companies in the same industry are, in aggregate, expected to see their revenue grow 3.0% per year. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - Digital Media Solutions is expected to lag the wider industry.

The Bottom Line

The most important thing to note from this downgrade is that the consensus increased its forecast losses this year, suggesting all may not be well at Digital Media Solutions. Unfortunately analysts also downgraded their revenue estimates, and industry data suggests that Digital Media Solutions' revenues are expected to grow slower than the wider market. After such a stark change in sentiment from analysts, we'd understand if readers now felt a bit wary of Digital Media Solutions.

As you can see, the analysts clearly aren't bullish, and there might be good reason for that. We've identified some potential issues with Digital Media Solutions' financials, such as dilutive stock issuance over the past year. For more information, you can click here to discover this and the 1 other risk we've identified.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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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