Analysts might have been a bit too bullish on PolarityTE, Inc. (NASDAQ:PTE), given that the company fell short of expectations when it released its annual results last week. The numbers were fairly weak, with sales of US$5.7m missing analyst predictions by 3.1%, and (statutory) losses of US$3.70 per share being slightly larger than what analysts had expected. Following the result, analysts have updated their earnings model, and it would be good to know whether they think there's been a strong change in the company's prospects, or if it's business as usual. So we collected the latest post-earnings statutory consensus estimates to see what could be in store for next year.
Following the latest results, PolarityTE's six analysts are now forecasting revenues of US$12.4m in 2020. This would be a substantial 119% improvement in sales compared to the last 12 months. Statutory losses are forecast to balloon 45% to US$2.04 per share. Before this latest report, the consensus had been expecting revenues of US$16.0m and US$2.62 per share in losses. So there's been quite a change-up of views after the latest results, with analysts making a serious cut to their revenue forecasts while also granting a massive increase in to the earnings per share numbers.
Analysts have cut their price target 21% to US$10.17 per share, suggesting that the declining revenue was a more crucial indicator than the forecast reduction in losses. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company's valuation. Currently, the most bullish analyst values PolarityTE at US$18.00 per share, while the most bearish prices it at US$5.00. So we wouldn't be assigning too much credibility to analyst price targets in this case, because there are clearly some widely different views on what kind of performance this business can generate. With this in mind, we wouldn't assign too much meaning to the consensus price target, as it is just an average and analysts clearly have some deeply divergent views on the business.
Further, we can compare these estimates to past performance, and see how PolarityTE forecasts compare to the wider market's forecast performance. For example, we noticed that PolarityTE's rate of growth is expected to accelerate meaningfully, with revenues forecast to grow at 119%, well above its historical decline of 26% a year over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in the market are forecast to see their revenue grow 16% per year. So it looks like PolarityTE is expected to grow faster than its competitors, at least for a while.
The Bottom Line
The most important thing to note from these estimates is that the consensus increased its forecast losses next year, suggesting all may not be well at PolarityTE. Unfortunately analysts also downgraded their revenue estimates, although industry data suggests that PolarityTE's revenues are expected to grow faster than the wider market. Even so, earnings are more important to the intrinsic value of the business. Analysts also downgraded their price target, suggesting that the latest news has led analysts to become more pessimistic about the intrinsic value of the business.
With that in mind, we wouldn't be too quick to come to a conclusion on PolarityTE. 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 PolarityTE going out to 2024, and you can see them free on our platform here..
We also provide an overview of the PolarityTE Board and CEO remuneration and length of tenure at the company, and whether insiders have been buying the stock, here.
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