Market forces rained on the parade of Flower One Holdings Inc. (CSE:FONE) shareholders today, when the analysts downgraded their forecasts for next year. Both revenue and earnings per share (EPS) forecasts went under the knife, suggesting the analysts have soured majorly on the business.
After the downgrade, the five analysts covering Flower One Holdings are now predicting revenues of US$54m in 2020. If met, this would reflect a sizeable improvement in sales compared to the last 12 months. Following this this downgrade, earnings are now expected to tip over into loss-making territory, with the analysts forecasting losses of US$0.10 per share in 2020. However, before this estimates update, the consensus had been expecting revenues of US$68m and US$0.048 per share in losses. Ergo, there's been a clear change in sentiment, with the analysts administering a notable cut to next year's revenue estimates, while at the same time increasing their loss per share forecasts.
The consensus price target fell 13% to CA$2.72, implicitly signalling that lower earnings per share are a leading indicator for Flower One Holdings' 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. Currently, the most bullish analyst values Flower One Holdings at CA$4.00 per share, while the most bearish prices it at CA$1.60. This is a fairly broad spread of estimates, suggesting that the analysts are forecasting a wide range of possible outcomes for the business.
The Bottom Line
The most important thing to take away is that analysts increased their loss per share estimates for next year. Given the scope of the downgrades, it would not be a surprise to see the market become more wary of the business.
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 Flower One Holdings' business, like concerns around earnings quality. Learn more, and discover the 3 other concerns we've identified, for 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.
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