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One of the biggest stories of last week was how eGain Corporation (NASDAQ:EGAN) shares plunged 35% in the week since its latest first-quarter results, closing yesterday at US$11.90. It looks like a credible result overall - although revenues of US$19m were what the analysts expected, eGain surprised by delivering a (statutory) profit of US$0.06 per share, an impressive 29% above what was forecast. 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. Readers will be glad to know we've aggregated the latest statutory forecasts to see whether the analysts have changed their mind on eGain after the latest results.
Following the latest results, eGain's six analysts are now forecasting revenues of US$77.7m in 2021. This would be an okay 4.1% improvement in sales compared to the last 12 months. Statutory earnings per share are expected to dive 73% to US$0.07 in the same period. In the lead-up to this report, the analysts had been modelling revenues of US$80.6m and earnings per share (EPS) of US$0.14 in 2021. The analysts seem less optimistic after the recent results, reducing their sales forecasts and making a pretty serious reduction to earnings per share numbers.
The consensus price target fell 5.4% to US$17.57, with the weaker earnings outlook clearly leading valuation estimates. There's another way to think about price targets though, and that's to look at the range of price targets put forward by analysts, because a wide range of estimates could suggest a diverse view on possible outcomes for the business. The most optimistic eGain analyst has a price target of US$22.00 per share, while the most pessimistic values it at US$15.00. As you can see, analysts are not all in agreement on the stock's future, but the range of estimates is still reasonably narrow, which could suggest that the outcome is not totally unpredictable.
These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the eGain's past performance and to peers in the same industry. It's clear from the latest estimates that eGain's rate of growth is expected to accelerate meaningfully, with the forecast 4.1% revenue growth noticeably faster than its historical growth of 1.0%p.a. over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to grow their revenue at 13% per year. So it's clear that despite the acceleration in growth, eGain is expected to grow meaningfully slower than the industry average.
The Bottom Line
The most important thing to take away is that the analysts downgraded their earnings per share estimates, showing that there has been a clear decline in sentiment following these results. On the negative side, they also downgraded their revenue estimates, and forecasts imply revenues will perform worse than the wider industry. The consensus price target fell measurably, with the analysts seemingly not reassured by the latest results, leading to a lower estimate of eGain's future valuation.
With that in mind, we wouldn't be too quick to come to a conclusion on eGain. Long-term earnings power is much more important than next year's profits. At Simply Wall St, we have a full range of analyst estimates for eGain going out to 2024, 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 1 warning sign with eGain , and understanding this should be part of your investment process.
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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