The latest analyst coverage could presage a bad day for ContextLogic Inc. (NASDAQ:WISH), 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. Surprisingly the share price has been buoyant, rising 20% to US$0.83 in the past 7 days. Whether the downgrade will have a negative impact on demand for shares is yet to be seen.
Following the downgrade, the most recent consensus for ContextLogic from its five analysts is for revenues of US$852m in 2023 which, if met, would be a solid 16% increase on its sales over the past 12 months. Per-share losses are expected to explode, reaching US$0.75 per share. Yet prior to the latest estimates, the analysts had been forecasting revenues of US$1.2b and losses of US$0.71 per share in 2023. So there's been quite a change-up of views after the recent consensus updates, with the analysts making a serious cut to their revenue forecasts while also expecting losses per share to increase.
The consensus price target fell 9.9% to US$2.78, with the analysts clearly concerned about the company following the weaker revenue and earnings outlook. There's another way to think about price targets though, and that's to look at the range of price targets put forward by analysts, because a wide range of estimates could suggest a diverse view on possible outcomes for the business. The most optimistic ContextLogic analyst has a price target of US$5.70 per share, while the most pessimistic values it at US$1.00. We would probably assign less value to the forecasts in this situation, because such a wide range of estimates could imply that the future of this business is difficult to value accurately. With this in mind, we wouldn't rely too heavily on the consensus price target, as it is just an average and analysts clearly have some deeply divergent views on the 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. The analysts are definitely expecting ContextLogic's growth to accelerate, with the forecast 12% annualised growth to the end of 2023 ranking favourably alongside historical growth of 0.2% per annum over the past five years. Compare this with other companies in the same industry, which are forecast to grow their revenue 12% annually. ContextLogic is expected to grow at about the same rate as its industry, so it's not clear that we can draw any conclusions from its growth relative to competitors.
The Bottom Line
The most important thing to take away is that analysts increased their loss per share estimates for next year. Lamentably, they also downgraded their sales forecasts, but the business is still expected to grow at roughly the same rate as the market itself. 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 ContextLogic after today.
Still, the long-term prospects of the business are much more relevant than next year's earnings. At Simply Wall St, we have a full range of analyst estimates for ContextLogic going out to 2024, and you can see them 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.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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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