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Kala Pharmaceuticals, Inc. (NASDAQ:KALA) shareholders will have a reason to smile today, with the analysts making substantial upgrades to this year's statutory forecasts. The revenue forecast for this year has experienced a facelift, with analysts now much more optimistic on its sales pipeline.
After the upgrade, the six analysts covering Kala Pharmaceuticals are now predicting revenues of US$9.2m in 2020. If met, this would reflect a major 59% improvement in sales compared to the last 12 months. The loss per share is anticipated to greatly reduce in the near future, narrowing 29% to US$1.81. Yet before this consensus update, the analysts had been forecasting revenues of US$7.5m and losses of US$1.87 per share in 2020. So there's been quite a change-up of views after the recent consensus updates, with the analysts making a sizeable increase to their revenue forecasts while also reducing the estimated loss as the business grows towards breakeven.
The consensus price target rose 7.1% to US$20.00, with the analysts encouraged by the higher revenue and lower forecast losses for this year. 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 Kala Pharmaceuticals at US$34.00 per share, while the most bearish prices it at US$12.00. As you can see the range of estimates is wide, with the lowest valuation coming in at less than half the most bullish estimate, suggesting there are some strongly diverging views on how think this business will perform. 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.
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. We can infer from the latest estimates that forecasts expect a continuation of Kala Pharmaceuticals'historical trends, as next year's 59% revenue growth is roughly in line with 61% annual revenue growth over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to see their revenues grow 6.2% per year. So although Kala Pharmaceuticals is expected to maintain its revenue growth rate, it's definitely expected to grow faster than the wider industry.
The Bottom Line
The highlight for us was that the consensus reduced its estimated losses this year, perhaps suggesting Kala Pharmaceuticals is moving incrementally towards profitability. They also upgraded their revenue estimates for this year, and sales are expected to grow faster than the wider market. There was also a nice increase in the price target, with analysts apparently feeling that the intrinsic value of the business is improving. Given that analysts appear to be expecting substantial improvement in the sales pipeline, now could be the right time to take another look at Kala Pharmaceuticals.
Analysts are definitely bullish on Kala Pharmaceuticals, but no company is perfect. Indeed, you should know that there are several potential concerns to be aware of, including major dilution from new stock issuance in the past year. For more information, you can click through to our platform to learn more about this and the 2 other risks 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.
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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. Thank you for reading.