The latest analyst coverage could presage a bad day for Serko Limited (NZSE:SKO), with the analysts making across-the-board cuts to their statutory estimates that might leave shareholders a little shell-shocked. Both revenue and earnings per share (EPS) forecasts went under the knife, suggesting the analysts have soured majorly on the business.
Following the latest downgrade, the three analysts covering Serko provided consensus estimates of NZ$16m revenue in 2021, which would reflect a concerning 40% decline on its sales over the past 12 months. Per-share losses are expected to explode, reaching NZ$0.18 per share. However, before this estimates update, the consensus had been expecting revenues of NZ$18m and NZ$0.14 per share in losses. Ergo, there's been a clear change in sentiment, with the analysts administering a notable cut to this year's revenue estimates, while at the same time increasing their loss per share forecasts.
Analysts lifted their price target 7.5% to NZ$4.96, implicitly signalling that lower earnings per share are not expected to have a longer-term impact on the stock's value. 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 Serko, with the most bullish analyst valuing it at NZ$5.51 and the most bearish at NZ$4.40 per share. The narrow spread of estimates could suggest that the business' future is relatively easy to value, or that the analysts have a clear view on its prospects.
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 40% revenue decline a notable change from historical growth of 19% over the last five years. Compare this with our data, which suggests that other companies in the same industry are, in aggregate, expected to see their revenue grow 16% next year. It's pretty clear that Serko's revenues are expected to perform substantially worse 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 Serko. Unfortunately analysts also downgraded their revenue estimates, and industry data suggests that Serko's revenues are expected to grow slower than the wider market. The increasing price target is not intuitively what we would expect to see, given these downgrades, and we'd suggest shareholders revisit their investment thesis before making a decision.
With that said, the long-term trajectory of the company's earnings is a lot more important than next year. We have estimates - from multiple Serko analysts - going out to 2024, 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.
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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