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The analysts covering DarioHealth Corp. (NASDAQ:DRIO) delivered a dose of negativity to shareholders today, by making a substantial revision to their statutory forecasts for this year. Both revenue and earnings per share (EPS) estimates were cut sharply as the analysts factored in the latest outlook for the business, concluding that they were too optimistic previously.
After this downgrade, DarioHealth's twin analysts are now forecasting revenues of US$7.2m in 2020. This would be an okay 3.1% improvement in sales compared to the last 12 months. The loss per share is anticipated to greatly reduce in the near future, narrowing 42% to US$6.05. However, before this estimates update, the consensus had been expecting revenues of US$8.6m and US$2.66 per share in losses. 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.
Analysts lifted their price target 5.9% to US$9.00, implicitly signalling that lower earnings per share are not expected to have a longer-term impact on the stock's value. That's not the only conclusion we can draw from this data however, as some investors also like to consider the spread in estimates when evaluating analyst price targets. The most optimistic DarioHealth analyst has a price target of US$10.00 per share, while the most pessimistic values it at US$8.00. This is a very narrow spread of estimates, implying either that DarioHealth is an easy company to value, or - more likely - the analysts are relying heavily on some key assumptions.
Taking a look at the bigger picture now, one of the ways we can understand these forecasts is to see how they compare to both past performance and industry growth estimates. We would highlight that DarioHealth's revenue growth is expected to slow, with forecast 3.1% increase next year well below the historical 41% 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 9.7% next year. So it's pretty clear that, while revenue growth is expected to slow down, the wider industry is also expected to grow faster than DarioHealth.
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 DarioHealth. Unfortunately analysts also downgraded their revenue estimates, and industry data suggests that DarioHealth's revenues are expected to grow slower than the wider market. The rising price target is a puzzle, but still - with a serious cut to this year's outlook, we wouldn't be surprised if investors were a bit wary of DarioHealth.
After a downgrade like this, it's pretty clear that previous forecasts were too optimistic. What's more, we've spotted several possible issues with DarioHealth's business, like a short cash runway. For more information, you can click here to discover this and the 3 other flags we've identified.
Of course, seeing company management invest large sums of money in a stock can be just as useful as knowing whether analysts are downgrading their estimates. So you may also wish to search this free list of stocks that insiders are buying.
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