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One thing we could say about the covering analyst on Spark Networks SE (NYSEMKT:LOV) - they aren't optimistic, having just made a major negative revision to their near-term (statutory) forecasts for the organization. Both revenue and earnings per share (EPS) estimates were cut sharply as the analyst factored in the latest outlook for the business, concluding that they were too optimistic previously. Investors however, have been notably more optimistic about Spark Networks recently, with the stock price up a worthy 18% to €3.46 in the past week. It will be interesting to see if the downgrade has an impact on buying demand for the company's shares.
Following the downgrade, the current consensus from Spark Networks' solo analyst is for revenues of €196m in 2020 which - if met - would reflect a huge 94% increase on its sales over the past 12 months. Per-share losses are expected to explode, reaching €1.24 per share. Before this latest update, the analyst had been forecasting revenues of €231m and earnings per share (EPS) of €5.14 in 2020. There looks to have been a major change in sentiment regarding Spark Networks' prospects, with a substantial drop in revenues and the analyst now forecasting a loss instead of a profit.
The consensus price target fell 12% to US$13.25, with the analyst clearly concerned about the company following the weaker revenue and earnings outlook. 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 Spark Networks, with the most bullish analyst valuing it at US$19.00 and the most bearish at US$7.50 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.
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. It's clear from the latest estimates that Spark Networks' rate of growth is expected to accelerate meaningfully, with the forecast 94% revenue growth noticeably faster than its historical growth of 4.4% over the past year. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to grow their revenue at 13% per year. It seems obvious that, while the growth outlook is brighter than the recent past, the analyst also expect Spark Networks to grow faster than the wider industry.
The Bottom Line
The most important thing to take away is that the analyst is expecting Spark Networks to become unprofitable this year. Unfortunately, the analyst also downgraded their revenue estimates, although our data indicates revenues are expected to perform better than the wider market. After such a stark change in sentiment from the analyst, we'd understand if readers now felt a bit wary of Spark Networks.
There might be good reason for analyst bearishness towards Spark Networks, like major dilution from new stock issuance in the past year. For more information, you can click here to discover this and the 4 other warning signs 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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