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Market forces rained on the parade of Nanosonics Limited (ASX:NAN) shareholders today, when the analysts downgraded their 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 most recent consensus for Nanosonics from its ten analysts is for revenues of AU$102m in 2021 which, if met, would be a satisfactory 7.4% increase on its sales over the past 12 months. Statutory earnings per share are supposed to dip 8.8% to AU$0.018 in the same period. Prior to this update, the analysts had been forecasting revenues of AU$114m and earnings per share (EPS) of AU$0.041 in 2021. Indeed, we can see that the analysts are a lot more bearish about Nanosonics' prospects, administering a measurable cut to revenue estimates and slashing their EPS estimates to boot.
Analysts made no major changes to their price target of AU$5.35, suggesting the downgrades are not expected to have a long-term impact on Nanosonics' valuation. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. There are some variant perceptions on Nanosonics, with the most bullish analyst valuing it at AU$7.00 and the most bearish at AU$2.95 per share. 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. We can infer from the latest estimates that forecasts expect a continuation of Nanosonics'historical trends, as the 15% annualised revenue growth to the end of 2021 is roughly in line with the 18% annual revenue growth over the past five years. Juxtapose this against our data, which suggests that other companies (with analyst coverage) in the industry are forecast to see their revenues grow 15% per year. It's clear that while Nanosonics' revenue growth is expected to continue on its current trajectory, it's only expected to grow in line with the industry itself.
The Bottom Line
The most important thing to take away is that analysts cut their earnings per share estimates, expecting a clear decline in business conditions. There was also a drop in their revenue estimates, although as we saw earlier, forecast growth is only expected to be about the same as the wider market. The lack of change in the price target is puzzling in light of the downgrade but, with a serious decline expected this year, we wouldn't be surprised if investors were a bit wary of Nanosonics.
Even so, the longer term trajectory of the business is much more important for the value creation of shareholders. We have estimates - from multiple Nanosonics analysts - going out to 2025, and you can see them free on our platform here.
Of course, seeing company management invest large sums of money in a stock can be just as useful as knowing whether analysts are downgrading their estimates. So you may also wish to search this free list of stocks that insiders are buying.
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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