One thing we could say about the analysts on Storm Resources Ltd. (TSE:SRX) - they aren't optimistic, having just made a major negative revision to their near-term (statutory) forecasts for the organization. Both revenue and earnings per share (EPS) estimates were cut sharply as analysts factored in the latest outlook for the business, concluding that they were too optimistic previously.
After the downgrade, the consensus from Storm Resources' twin analysts is for revenues of CA$118m in 2020, which would reflect a disturbing 23% decline in sales compared to the last year of performance. Statutory earnings per share are supposed to plummet 60% to CA$0.07 in the same period. Previously, the analysts had been modelling revenues of CA$191m and earnings per share (EPS) of CA$0.14 in 2020. Indeed, we can see that the analysts are a lot more bearish about Storm Resources' prospects, administering a pretty serious reduction to revenue estimates and slashing their EPS estimates to boot.
The average price target climbed 13% to CA$2.22 despite the reduced earnings forecasts, suggesting that this earnings impact could be a positive for the stock, once it passes. That's not the only conclusion we can draw from this data however, as some investors also like to consider the spread in estimates when evaluating analyst price targets. The most optimistic Storm Resources analyst has a price target of CA$3.00 per share, while the most pessimistic values it at CA$1.25. Note the wide gap in analyst price targets? This implies to us that there is a fairly broad range of possible scenarios for the underlying business.
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. These estimates imply that sales are expected to slow, with a forecast revenue decline of 23%, a significant reduction from annual growth of 24% over the last five years. Compare this with our data, which suggests that other companies in the same industry are, in aggregate, expected to see their revenue grow 5.9% next year. It's pretty clear that Storm Resources' revenues are expected to perform substantially worse than the wider industry.
The Bottom Line
The biggest issue in the new estimates is that analysts have reduced their earnings per share estimates, suggesting business headwinds lay ahead for Storm Resources. Unfortunately analysts also downgraded their revenue estimates, and industry data suggests that Storm Resources' revenues are expected to grow slower than the wider market. The rising price target is a puzzle, but still - with a serious cut to this year's outlook, we wouldn't be surprised if investors were a bit wary of Storm Resources.
Still, the long-term prospects of the business are much more relevant than next year's earnings. At least one analyst has provided forecasts out to 2021, which can be seen 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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