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The analysts covering Ardelyx, Inc. (NASDAQ:ARDX) delivered a dose of negativity to shareholders today, by making a substantial revision to their statutory forecasts for this year. There was a fairly draconian cut to their revenue estimates, perhaps an implicit admission that previous forecasts were much too optimistic.
After the downgrade, the six analysts covering Ardelyx are now predicting revenues of US$19m in 2021. If met, this would reflect a substantial 49% improvement in sales compared to the last 12 months. Losses are supposed to balloon 24% to US$1.43 per share. However, before this estimates update, the consensus had been expecting revenues of US$22m and US$1.33 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.
There was no major change to the consensus price target of US$13.50, signalling that the business is performing roughly in line with expectations, despite lower earnings per share forecasts. 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. The most optimistic Ardelyx analyst has a price target of US$15.00 per share, while the most pessimistic values it at US$11.00. Still, with such a tight range of estimates, it suggests the analysts have a pretty good idea of what they think the company is worth.
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. One thing stands out from these estimates, which is that Ardelyx is forecast to grow faster in the future than it has in the past, with revenues expected to display 70% annualised growth until the end of 2021. If achieved, this would be a much better result than the 16% annual decline over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in the industry are forecast to see their revenue grow 14% per year. So it looks like Ardelyx is expected to grow faster than its competitors, at least for a while.
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 Ardelyx. While analysts did downgrade their revenue estimates, these forecasts still imply revenues will perform better than the wider market. Often, one downgrade can set off a daisy-chain of cuts, especially if an industry is in decline. So we wouldn't be surprised if the market became a lot more cautious on Ardelyx after today.
With that said, the long-term trajectory of the company's earnings is a lot more important than next year. We have estimates - from multiple Ardelyx analysts - going out to 2025, and you can see them 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.
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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