Market forces rained on the parade of Digirad Corporation (NASDAQ:DRAD) shareholders today, when the covering analyst downgraded their forecasts for this year. Both revenue and earnings per share (EPS) forecasts went under the knife, suggesting the analyst has soured majorly on the business.
Following the latest downgrade, the current consensus, from the solo analyst covering Digirad, is for revenues of US$105m in 2020, which would reflect a not inconsiderable 8.3% reduction in Digirad's sales over the past 12 months. Losses are supposed to balloon 26% to US$3.39 per share. Yet before this consensus update, the analyst had been forecasting revenues of US$136m and losses of US$1.70 per share in 2020. So there's been quite a change-up of views after the recent consensus updates, with the analyst making a serious cut to their revenue forecasts while also expecting losses per share to increase.
The consensus price target fell 20% to US$8.00, with the analyst clearly concerned about the company following the weaker revenue and earnings outlook.
Of course, another way to look at these forecasts is to place them into context against the industry itself. These estimates imply that sales are expected to slow, with a forecast revenue decline of 8.3%, a significant reduction from annual growth of 11% 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 6.7% annually for the foreseeable future. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - Digirad is expected to lag the wider industry.
The Bottom Line
The most important thing to take away is that the analyst increased their loss per share estimates for this year. Unfortunately the analyst also downgraded their revenue estimates, and industry data suggests that Digirad's revenues are expected to grow slower than the wider market. With a serious cut to this year's expectations and a falling price target, we wouldn't be surprised if investors were becoming wary of Digirad.
After a downgrade like this, it's pretty clear that previous forecasts were too optimistic. What's more, we've spotted several possible issues with Digirad's business, like a short cash runway. Learn more, and discover the 1 other risk 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.
If you spot an error that warrants correction, please contact the editor at email@example.com. 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.