It's been a mediocre week for The Supreme Cannabis Company, Inc. (TSE:FIRE) shareholders, with the stock dropping 17% to CA$0.71 in the week since its latest quarterly results. Revenues came in at CA$11m, a whole 45% below what analysts were forecasting. Losses were a (relative) bright spot by comparison, with a per-share loss of CA$0.05 substantially smaller than what analysts had expected. Following the result, analysts have updated their earnings model, and it would be good to know whether they think there's been a strong change in the company's prospects, or if it's business as usual. Readers will be glad to know we've aggregated the latest forecasts to see whether analysts have changed their mind on Supreme Cannabis Company after the latest results.
Taking into account the latest results, the latest consensus from Supreme Cannabis Company's eight analysts is for revenues of CA$103.1m in 2020, which would reflect a sizeable 114% improvement in sales compared to the last 12 months. Losses are predicted to fall substantially, shrinking 100% to CA$0.17. Before this earnings report, analysts had been forecasting revenues of CA$133.9m and earnings per share (EPS) of CA$0.047 in 2020. So we can see that the consensus has become notably more bearish on Supreme Cannabis Company's outlook following these results, with a large cut to next year's revenue estimates. Furthermore, they expect the business to be loss-making next year, compared to their previous forecasts of a profit.
The average analyst price target fell 8.7% to CA$1.89, implicitly signalling that lower earnings per share are a leading indicator for Supreme Cannabis Company's valuation. 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. There are some variant perceptions on Supreme Cannabis Company, with the most bullish analyst valuing it at CA$3.25 and the most bearish at CA$0.80 per share. As you can see the range of estimates is wide, with the lowest valuation coming in at less than half the most bullish estimate, suggesting there are some strongly diverging views on how analysts think this business will perform. As a result it might not be possible to derive much meaning from the consensus price target, which is after all just an average of this wide range of estimates.
Another way to assess these estimates is by comparing them to past performance, and seeing whether analysts are more or less bullish relative to other companies in the market. It's pretty clear that analysts expect Supreme Cannabis Company's revenue growth will slow down substantially, with revenues next year expected to grow 114%, compared to a historical growth rate of 287% over the past year. By way of comparison, other companies in this market with analyst coverage, are forecast to grow their revenue at 58% next year. So it's pretty clear that, while Supreme Cannabis Company's revenue growth is expected to slow, it's still expected to grow faster than the market itself.
The Bottom Line
The biggest low-light for us was that the forecasts for Supreme Cannabis Company dropped from profits to a loss next year. Unfortunately analysts also downgraded their revenue estimates, although industry data suggests that Supreme Cannabis Company's revenues are expected to grow faster than the wider market. Analysts also downgraded their price target, suggesting that the latest news has led analysts to become more pessimistic about the intrinsic value of the business.
With that said, the long-term trajectory of the company's earnings is a lot more important than next year. At Simply Wall St, we have a full range of analyst estimates for Supreme Cannabis Company going out to 2021, and you can see them free on our platform here..
You can also view our analysis of Supreme Cannabis Company's balance sheet, and whether we think Supreme Cannabis Company is carrying too much debt, for free on our platform here.
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