A week ago, Rosetta Stone Inc. (NYSE:RST) came out with a strong set of quarterly numbers that could potentially lead to a re-rate of the stock. Rosetta Stone beat expectations with revenues of US$47m arriving 3.1% ahead of forecasts. The company also reported a statutory loss of US$0.26, 6.5% smaller than was expected. Earnings are an important time for investors, as they can track a company's performance, look at what the analysts are forecasting for next year, and see if there's been a change in sentiment towards the company. So we collected the latest post-earnings statutory consensus estimates to see what could be in store for next year.
Taking into account the latest results, the most recent consensus for Rosetta Stone from five analysts is for revenues of US$191.1m in 2020 which, if met, would be an okay 3.1% increase on its sales over the past 12 months. Per-share losses are supposed to see a sharp uptick, reaching US$0.94. Before this latest report, the consensus had been expecting revenues of US$192.0m and US$0.85 per share in losses. While this year's revenue estimates held steady, there was also a loss per share expectations, suggesting the consensus has a bit of a mixed view on the stock.
Although the analysts are now forecasting higher losses, the average price target rose 9.2% to 19.6, which could indicate that these losses are expected to be "one-off", or are not anticipated to have a longer-term impact on the business. 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 Rosetta Stone analyst has a price target of US$25.00 per share, while the most pessimistic values it at US$18.00. As you can see, analysts are not all in agreement on the stock's future, but the range of estimates is still reasonably narrow, which could suggest that the outcome is not totally unpredictable.
Of course, another way to look at these forecasts is to place them into context against the industry itself. For example, we noticed that Rosetta Stone's rate of growth is expected to accelerate meaningfully, with revenues forecast to grow 3.1%, well above its historical decline of 7.0% a year over the past five years. Compare this against analyst estimates for the wider industry, which suggest that (in aggregate) industry revenues are expected to grow 12% next year. So although Rosetta Stone's revenue growth is expected to improve, it is still expected to grow slower than the industry.
The Bottom Line
The most important thing to note is the forecast of increased losses next year, suggesting all may not be well at Rosetta Stone. On the plus side, there were no major changes to revenue estimates; although forecasts imply revenues will perform worse than the wider industry. We note an upgrade to the price target, suggesting that the analysts believes the intrinsic value of the business is likely to improve over time.
With that said, the long-term trajectory of the company's earnings is a lot more important than next year. We have forecasts for Rosetta Stone going out to 2022, and you can see them free on our platform here.
Even so, be aware that Rosetta Stone is showing 3 warning signs in our investment analysis , you should know about...
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Simply Wall St has no position in the stocks mentioned.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.