The analysts covering Ontrak, Inc. (NASDAQ:OTRK) delivered a dose of negativity to shareholders today, by making a substantial revision to their statutory forecasts for this year. Revenue estimates were cut sharply as analysts signalled a weaker outlook - perhaps a sign that investors should temper their expectations as well. Surprisingly the share price has been buoyant, rising 27% to US$0.88 in the past 7 days. Whether the downgrade will have a negative impact on demand for shares is yet to be seen.
Following the latest downgrade, the three analysts covering Ontrak provided consensus estimates of US$21m revenue in 2022, which would reflect a substantial 44% decline on its sales over the past 12 months. Losses are expected to increase substantially, hitting US$3.05 per share. Yet before this consensus update, the analysts had been forecasting revenues of US$25m and losses of US$2.85 per share in 2022. 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.
The consensus price target was broadly unchanged at US$2.33, perhaps implicitly signalling that the weaker earnings outlook is not expected to have a long-term impact on the valuation. There's another way to think about price targets though, and that's to look at the range of price targets put forward by analysts, because a wide range of estimates could suggest a diverse view on possible outcomes for the business. Currently, the most bullish analyst values Ontrak at US$3.00 per share, while the most bearish prices it at US$2.00. There are definitely some different views on the stock, but the range of estimates is not wide enough as to imply that the situation is unforecastable, in our view.
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. We would highlight that sales are expected to reverse, with a forecast 69% annualised revenue decline to the end of 2022. That is a notable change from historical growth of 42% over the last five years. By contrast, our data suggests that other companies (with analyst coverage) in the same industry are forecast to see their revenue grow 7.1% annually for the foreseeable future. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - Ontrak is expected to lag the wider industry.
The Bottom Line
The most important thing to take away is that analysts increased their loss per share estimates for this year. Regrettably, they also downgraded their revenue estimates, and the latest forecasts imply the business will grow sales slower than the wider market. Overall, given the drastic downgrade to this year's forecasts, we'd be feeling a little more wary of Ontrak going forwards.
That said, the analysts might have good reason to be negative on Ontrak, given a short cash runway. Learn more, and discover the 3 other risks we've identified, for free on our platform here.
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. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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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