Things Look Grim For Cara Therapeutics, Inc. (NASDAQ:CARA) After Today's Downgrade
The analysts covering Cara Therapeutics, Inc. (NASDAQ:CARA) delivered a dose of negativity to shareholders today, by making a substantial revision to their statutory forecasts for this year. Both revenue and earnings per share (EPS) forecasts went under the knife, suggesting analysts have soured majorly on the business.
Following the downgrade, the current consensus from Cara Therapeutics' eight analysts is for revenues of US$53m in 2023 which - if met - would reflect a sizeable 27% increase on its sales over the past 12 months. Losses are expected to increase substantially, hitting US$1.75 per share. Yet prior to the latest estimates, the analysts had been forecasting revenues of US$114m and losses of US$0.80 per share in 2023. So there's been quite a change-up of views after the recent consensus updates, with the analysts making a serious cut to their revenue forecasts while also expecting losses per share to increase.
Check out our latest analysis for Cara Therapeutics
The consensus price target fell 20% to US$18.50, with the analysts clearly concerned about the company following the weaker revenue and earnings outlook. There's another way to think about price targets though, and that's to look at the range of price targets put forward by analysts, because a wide range of estimates could suggest a diverse view on possible outcomes for the business. There are some variant perceptions on Cara Therapeutics, with the most bullish analyst valuing it at US$28.00 and the most bearish at US$6.00 per share. We would probably assign less value to the forecasts in this situation, because such a wide range of estimates could imply that the future of this business is difficult to value accurately. 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.
Looking at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up against both past performance and industry growth estimates. We would highlight that Cara Therapeutics' revenue growth is expected to slow, with the forecast 27% annualised growth rate until the end of 2023 being well below the historical 36% p.a. growth over the last five years. Juxtapose this against the other companies in the industry with analyst coverage, which are forecast to grow their revenues (in aggregate) 4.9% per year. Even after the forecast slowdown in growth, it seems obvious that Cara Therapeutics is also expected to grow faster than the wider industry.
The Bottom Line
The most important thing to note from this downgrade is that the consensus increased its forecast losses this year, suggesting all may not be well at Cara Therapeutics. While analysts did downgrade their revenue estimates, these forecasts still imply revenues will perform better than the wider market. Given the scope of the downgrades, it would not be a surprise to see the market become more wary of the business.
Still, the long-term prospects of the business are much more relevant than next year's earnings. We have estimates - from multiple Cara Therapeutics analysts - going out to 2025, and you can see them 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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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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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