The analysts covering Arcturus Therapeutics Holdings Inc. (NASDAQ:ARCT) delivered a dose of negativity to shareholders today, by making a substantial revision to their statutory forecasts for next year. Revenue estimates were cut sharply as analysts signalled a weaker outlook - perhaps a sign that investors should temper their expectations as well.
Following the downgrade, the current consensus from Arcturus Therapeutics Holdings' ten analysts is for revenues of US$97m in 2021 which - if met - would reflect a major increase on its sales over the past 12 months. The loss per share is anticipated to greatly reduce in the near future, narrowing 59% to US$1.22. Previously, the analysts had been modelling revenues of US$189m and earnings per share (EPS) of US$0.12 in 2021. So we can see that the consensus has become notably more bearish on Arcturus Therapeutics Holdings' outlook with these numbers, making a pretty serious reduction to next year's revenue estimates. Furthermore, they expect the business to be loss-making next year, compared to their previous forecasts of a profit.
The consensus price target fell 8.1% to US$103, implicitly signalling that lower earnings per share are a leading indicator for Arcturus Therapeutics Holdings' valuation. That's not the only conclusion we can draw from this data however, as some investors also like to consider the spread in estimates when evaluating analyst price targets. Currently, the most bullish analyst values Arcturus Therapeutics Holdings at US$172 per share, while the most bearish prices it at US$68.00. With such a wide range in price targets, the analysts are almost certainly betting on widely diverse outcomes for the underlying business. As a result it might not be possible to derive much meaning from the consensus price target, which is after all just an average of this wide range of estimates.
Of course, another way to look at these forecasts is to place them into context against the industry itself. It's clear from the latest estimates that Arcturus Therapeutics Holdings' rate of growth is expected to accelerate meaningfully, with the forecast 8x revenue growth noticeably faster than its historical growth of 9.6% p.a. over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to grow their revenue at 21% per year. It seems obvious that, while the growth outlook is brighter than the recent past, the analysts also expect Arcturus Therapeutics Holdings to grow faster than the wider industry.
The Bottom Line
The most important thing to take away is that analysts are expecting Arcturus Therapeutics Holdings to become unprofitable next year. Unfortunately, analysts also downgraded their revenue estimates, although our data indicates revenues are expected to perform better than the wider market. The consensus price target fell measurably, with analysts seemingly not reassured by recent business developments, leading to a lower estimate of Arcturus Therapeutics Holdings' future valuation. Given the stark change in sentiment, we'd understand if investors became more cautious on Arcturus Therapeutics Holdings after today.
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 Arcturus Therapeutics Holdings' business, like major dilution from new stock issuance in the past year. For more information, you can click here to discover this and the 1 other flag 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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