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It's shaping up to be a tough period for Scales Corporation Limited (NZSE:SCL), which a week ago released some disappointing yearly results that could have a notable impact on how the market views the stock. Results showed a clear earnings miss, with NZ$471m revenue coming in 3.4% lower than what the analystsexpected. Statutory earnings per share (EPS) of NZ$0.15 missed the mark badly, arriving some 26% below what was expected. The analysts typically update their forecasts at each earnings report, and we can judge from their estimates whether their view of the company has changed or if there are any new concerns to be aware of. 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, Scales' dual analysts currently expect revenues in 2021 to be NZ$475.9m, approximately in line with the last 12 months. Per-share earnings are expected to bounce 40% to NZ$0.21. Before this earnings report, the analysts had been forecasting revenues of NZ$507.7m and earnings per share (EPS) of NZ$0.23 in 2021. The analysts are less bullish than they were before these results, given the reduced revenue forecasts and the small dip in earnings per share expectations.
Despite the cuts to forecast earnings, there was no real change to the NZ$5.20 price target, showing that the analysts don't think the changes have a meaningful impact on its intrinsic value.
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. It's pretty clear that there is an expectation that Scales' revenue growth will slow down substantially, with revenues next year expected to grow 1.1%, compared to a historical growth rate of 8.7% over the past five years. By way of comparison, the other companies in this industry with analyst coverage are forecast to grow their revenue at 14% per year. Factoring in the forecast slowdown in growth, it seems obvious that Scales is also expected to grow slower than other industry participants.
The Bottom Line
The most important thing to take away is that the analysts downgraded their earnings per share estimates, showing that there has been a clear decline in sentiment following these results. Unfortunately, they also downgraded their revenue estimates, and our data indicates revenues are expected to perform worse than the wider industry. Even so, earnings per share are more important to the intrinsic value of the business. The consensus price target held steady at NZ$5.20, with the latest estimates not enough to have an impact on their price targets.
With that said, the long-term trajectory of the company's earnings is a lot more important than next year. We have analyst estimates for Scales going out as far as 2023, and you can see them free on our platform here.
We don't want to rain on the parade too much, but we did also find 2 warning signs for Scales that you need to be mindful of.
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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