The latest analyst coverage could presage a bad day for The Valens Company Inc. (TSE:VLNS), with the analysts making across-the-board cuts to their statutory estimates that might leave shareholders a little shell-shocked. There was a fairly draconian cut to their revenue estimates, perhaps an implicit admission that previous forecasts were much too optimistic.
Following the downgrade, the latest consensus from Valens' eight analysts is for revenues of CA$119m in 2020, which would reflect a major 36% improvement in sales compared to the last 12 months. Before the latest update, the analysts were foreseeing CA$137m of revenue in 2020. The consensus view seems to have become more pessimistic on Valens, noting the measurable cut to revenue estimates in this update.
The consensus price target fell 9.8% to CA$6.25, with the analysts clearly less optimistic about Valens' valuation following this update. The consensus price target is just an average of individual analyst targets, so - it could be handy to see how wide the range of underlying estimates is. Currently, the most bullish analyst values Valens at CA$8.00 per share, while the most bearish prices it at CA$4.00. 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.
Another way we can view these estimates is in the context of the bigger picture, such as how the forecasts stack up against past performance, and whether forecasts are more or less bullish relative to other companies in the industry. It's pretty clear that there is an expectation that Valens' revenue growth will slow down substantially, with revenues next year expected to grow 36%, compared to a historical growth rate of 147% over the past three years. Juxtapose this against the other companies in the industry with analyst coverage, which are forecast to grow their revenues (in aggregate) 33% next year. Factoring in the forecast slowdown in growth, it looks like Valens is forecast to grow at about the same rate as the wider industry.
The Bottom Line
The most important thing to take away is that analysts cut their revenue estimates for this year. The analysts also expect revenues to grow approximately in line with the wider market. Furthermore, there was a cut to the price target, suggesting that the latest news has led to more pessimism about the intrinsic value of the business. Often, one downgrade can set off a daisy-chain of cuts, especially if an industry is in decline. So we wouldn't be surprised if the market became a lot more cautious on Valens after today.
So things certainly aren't looking great, and you should also know that we've spotted some potential warning signs with Valens, including recent substantial insider selling. Learn more, and discover the 3 other risks 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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