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The analysts covering iRhythm Technologies, Inc. (NASDAQ:IRTC) delivered a dose of negativity to shareholders today, by making a substantial revision to their statutory 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 downgrade, the latest consensus from iRhythm Technologies' nine analysts is for revenues of US$273m in 2021, which would reflect a reasonable 2.9% improvement in sales compared to the last 12 months. Losses are supposed to balloon 70% to US$2.69 per share. However, before this estimates update, the consensus had been expecting revenues of US$326m and US$2.39 per share in losses. Ergo, there's been a clear change in sentiment, with the analysts administering a notable cut to this year's revenue estimates, while at the same time increasing their loss per share forecasts.
The consensus price target fell 56% to US$97.80, implicitly signalling that lower earnings per share are a leading indicator for iRhythm Technologies' valuation. 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. There are some variant perceptions on iRhythm Technologies, with the most bullish analyst valuing it at US$190 and the most bearish at US$80.00 per share. We would probably assign less value to the forecasts in this situation, because such a wide range of estimates could imply that the future of this business is difficult to value accurately. As a result it might not be possible to derive much meaning from the consensus price target, which is after all just an average of this wide range of estimates.
Of course, another way to look at these forecasts is to place them into context against the industry itself. We would highlight that iRhythm Technologies' revenue growth is expected to slow, with the forecast 2.9% annualised growth rate until the end of 2021 being well below the historical 35% p.a. growth over the last five years. Compare this against other companies (with analyst forecasts) in the industry, which are in aggregate expected to see revenue growth of 9.1% annually. Factoring in the forecast slowdown in growth, it seems obvious that iRhythm Technologies is also expected to grow slower than other industry participants.
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 iRhythm Technologies. Unfortunately analysts also downgraded their revenue estimates, and industry data suggests that iRhythm Technologies' 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 iRhythm Technologies.
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 iRhythm Technologies' financials, such as dilutive stock issuance over the past year. For more information, you can click here to discover this and the 3 other concerns 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.
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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