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Market forces rained on the parade of Genetic Signatures Limited (ASX:GSS) shareholders today, when the covering analyst downgraded their forecasts for this year. Revenue and earnings per share (EPS) forecasts were both revised downwards, with the analyst seeing grey clouds on the horizon.
Following the latest downgrade, the sole analyst covering Genetic Signatures provided consensus estimates of AU$28m revenue in 2021, which would reflect a small 3.9% decline on its sales over the past 12 months. Statutory earnings per share are anticipated to plunge 70% to AU$0.01 in the same period. Before this latest update, the analyst had been forecasting revenues of AU$34m and earnings per share (EPS) of AU$0.037 in 2021. Indeed, we can see that the analyst is a lot more bearish about Genetic Signatures' prospects, administering a substantial drop in revenue estimates and slashing their EPS estimates to boot.
The analyst made no major changes to their price target of AU$3.20, suggesting the downgrades are not expected to have a long-term impact on Genetic Signatures' valuation.
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. These estimates imply that sales are expected to slow, with a forecast annualised revenue decline of 7.6% by the end of 2021. This indicates a significant reduction from annual growth of 43% 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 13% per year. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - Genetic Signatures is expected to lag the wider industry.
The Bottom Line
The biggest issue in the new estimates is that the analyst has reduced their earnings per share estimates, suggesting business headwinds lay ahead for Genetic Signatures. Unfortunately the analyst also downgraded their revenue estimates, and industry data suggests that Genetic Signatures' revenues are expected to grow slower than 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 Genetic Signatures.
So things certainly aren't looking great, and you should also know that we've spotted some potential warning signs with Genetic Signatures, including concerns around earnings quality. Learn more, and discover the 1 other risk 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.
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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