Today is shaping up negative for Xref Limited (ASX:XF1) shareholders, with the covering analyst delivering a substantial negative revision to this year's forecasts. Revenue and earnings per share (EPS) forecasts were both revised downwards, with the analyst seeing grey clouds on the horizon.
Following the downgrade, the consensus from one analyst covering Xref is for revenues of AU$7.8m in 2020, implying a considerable 9.7% decline in sales compared to the last 12 months. Losses are forecast to narrow 7.9% to AU$0.058 per share. However, before this estimates update, the consensus had been expecting revenues of AU$9.6m and AU$0.048 per share in losses. So there's been quite a change-up of views after the recent consensus updates, with the analyst making a serious cut to their revenue forecasts while also expecting losses per share to increase.
The consensus price target fell 16% to AU$0.21, with the analyst clearly concerned about the company following the weaker revenue and earnings outlook.
Taking a look at the bigger picture now, one of the ways we can understand these forecasts is to see how they compare to both past performance and industry growth estimates. We would highlight that sales are expected to reverse, with the forecast 9.7% revenue decline a notable change from historical growth of 46% over the last three years. By contrast, our data suggests that other companies (with analyst coverage) in the same industry are forecast to see their revenue grow 20% annually for the foreseeable future. It's pretty clear that Xref's revenues are expected to perform substantially worse than the wider industry.
The Bottom Line
The most important thing to take away is that the analyst increased their loss per share estimates for this year. Regrettably, they also downgraded their revenue estimates, and the latest forecasts imply the business will grow sales slower than the wider market. After such a stark change in sentiment from the analyst, we'd understand if readers now felt a bit wary of Xref.
As you can see, the analyst clearly isn't bullish, and there might be good reason for that. We've identified some potential issues with Xref's financials, such as a short cash runway. For more information, you can click here to discover this and the 4 other concerns we've identified.
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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