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One thing we could say about the covering analyst on Cann Group Limited (ASX:CAN) - they aren't optimistic, having just made a major negative revision to their near-term (statutory) forecasts for the organization. There was a fairly draconian cut to their revenue estimates, perhaps an implicit admission that previous forecasts were much too optimistic. Investors however, have been notably more optimistic about Cann Group recently, with the stock price up a majestic 77% to AU$0.55 in the past week. With such a sharp increase, it seems brokers may have seen something that is not yet being priced in by the wider market.
After this downgrade, Cann Group's solitary analyst is now forecasting revenues of AU$14m in 2021. This would be a huge improvement in sales compared to the last 12 months. Before the latest update, the analyst was foreseeing AU$16m of revenue in 2021. It looks like forecasts have become a fair bit less optimistic on Cann Group, given the substantial drop in revenue estimates.
There was no particular change to the consensus price target of AU$1.86, with Cann Group's latest outlook seemingly not enough to result in a change of valuation. 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. There are some variant perceptions on Cann Group, with the most bullish analyst valuing it at AU$2.60 and the most bearish at AU$1.12 per share. This is a fairly broad spread of estimates, suggesting that the analyst is forecasting a wide range of possible outcomes for the business.
One way to get more context on these forecasts is to look at how they compare to both past performance, and how other companies in the same industry are performing. The analyst is definitely expecting Cann Group's growth to accelerate, with the forecast 8x growth ranking favourably alongside historical growth of 60% per annum over the past five years. Compare this with other companies in the same industry, which are forecast to grow their revenue 36% next year. It seems obvious that, while the growth outlook is brighter than the recent past, the analyst also expect Cann Group to grow faster than the wider industry.
The Bottom Line
The most important thing to take away is that the analyst cut their revenue estimates for this year. They're also forecasting more rapid revenue growth than the wider market. Given the stark change in sentiment, we'd understand if investors became more cautious on Cann Group after today.
As you can see, the analyst clearly isn't bullish, and there might be good reason for that. We've identified some potential issues with Cann Group's financials, such as major dilution from new stock issuance in the past year. For more information, you can click here to discover this and the 3 other warning signs 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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