Market forces rained on the parade of Wave Life Sciences Ltd. (NASDAQ:WVE) shareholders today, when the analysts downgraded their forecasts for this year. Revenue and earnings per share (EPS) forecasts were both revised downwards, with analysts seeing grey clouds on the horizon. Investors however, have been notably more optimistic about Wave Life Sciences recently, with the stock price up an unbelievable 47% to US$3.50 in the past week. It will be interesting to see if the downgrade has an impact on buying demand for the company's shares.
Following the latest downgrade, the current consensus, from the seven analysts covering Wave Life Sciences, is for revenues of US$11m in 2022, which would reflect a concerning 73% reduction in Wave Life Sciences' sales over the past 12 months. Losses are supposed to balloon 64% to US$2.27 per share. However, before this estimates update, the consensus had been expecting revenues of US$14m and US$1.95 per share in losses. 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.
There was no major change to the consensus price target of US$8.43, signalling that the business is performing roughly in line with expectations, despite lower earnings per share forecasts. 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. The most optimistic Wave Life Sciences analyst has a price target of US$17.00 per share, while the most pessimistic values it at US$3.00. As you can see the range of estimates is wide, with the lowest valuation coming in at less than half the most bullish estimate, suggesting there are some strongly diverging views on how think this business will perform. 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.
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. We would highlight that sales are expected to reverse, with a forecast 93% annualised revenue decline to the end of 2022. That is a notable change from historical growth of 40% 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 3.5% per year. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - Wave Life Sciences is expected to lag the wider industry.
The Bottom Line
The most important thing to take away is that analysts increased their loss per share estimates for this year. Unfortunately analysts also downgraded their revenue estimates, and industry data suggests that Wave Life Sciences' 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 Wave Life Sciences.
As you can see, the analysts clearly aren't bullish, and there might be good reason for that. We've identified some potential issues with Wave Life Sciences' financials, such as major dilution from new stock issuance in the past year. Learn more, and discover the 1 other warning sign 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.
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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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