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Market forces rained on the parade of NanoString Technologies, Inc. (NASDAQ:NSTG) shareholders today, when the analysts downgraded their forecasts for this year. Revenue and earnings per share (EPS) forecasts were both revised downwards, with analysts seeing grey clouds on the horizon.
Following the latest downgrade, the five analysts covering NanoString Technologies provided consensus estimates of US$114m revenue in 2020, which would reflect a definite 8.9% decline on its sales over the past 12 months. Per-share losses are expected to explode, reaching US$1.98 per share. Yet prior to the latest estimates, the analysts had been forecasting revenues of US$128m and losses of US$1.79 per share in 2020. 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.
The consensus price target fell 9.4% to US$32.80, implicitly signalling that lower earnings per share are a leading indicator for NanoString Technologies' valuation. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. Currently, the most bullish analyst values NanoString Technologies at US$40.00 per share, while the most bearish prices it at US$25.00. This shows there is still some diversity in estimates, but analysts don't appear to be totally split on the stock as though it might be a success or failure situation.
One way to get more context on these forecasts is to look at how they compare to both past performance, and how other companies in the same industry are performing. We would highlight that sales are expected to reverse, with the forecast 8.9% revenue decline a notable change from historical growth of 18% over the last five years. Compare this with our data, which suggests that other companies in the same industry are, in aggregate, expected to see their revenue grow 6.5% next year. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - NanoString Technologies 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 NanoString Technologies. Unfortunately analysts also downgraded their revenue estimates, and industry data suggests that NanoString Technologies' revenues are expected to grow slower than the wider market. Given the scope of the downgrades, it would not be a surprise to see the market become more wary of the business.
So things certainly aren't looking great, and you should also know that we've spotted some potential warning signs with NanoString Technologies, including dilutive stock issuance over the past year. Learn more, and discover the 3 other risks we've identified, 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.
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