Today is shaping up negative for CS Disco, Inc. (NYSE:LAW) shareholders, with the analysts delivering a substantial negative revision to this year's forecasts. Both revenue and earnings per share (EPS) forecasts went under the knife, suggesting the analysts have soured majorly on the business.
Following this downgrade, CS Disco's nine analysts are forecasting 2022 revenues to be US$134m, approximately in line with the last 12 months. Losses are supposed to balloon 48% to US$1.27 per share. However, before this estimates update, the consensus had been expecting revenues of US$152m and US$1.04 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.
The consensus price target fell 22% to US$27.70, implicitly signalling that lower earnings per share are a leading indicator for CS Disco's valuation. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. Currently, the most bullish analyst values CS Disco at US$35.00 per share, while the most bearish prices it at US$20.00. There are definitely some different views on the stock, but the range of estimates is not wide enough as to imply that the situation is unforecastable, in our view.
These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the CS Disco's past performance and to peers in the same industry. We would highlight that CS Disco's revenue growth is expected to slow, with the forecast 3.7% annualised growth rate until the end of 2022 being well below the historical 50% growth over the last year. Compare this against other companies (with analyst forecasts) in the industry, which are in aggregate expected to see revenue growth of 14% annually. Factoring in the forecast slowdown in growth, it seems obvious that CS Disco is also expected to grow slower than other industry participants.
The Bottom Line
The most important thing to note from this downgrade is that the consensus increased its forecast losses this year, suggesting all may not be well at CS Disco. Regrettably, they also downgraded their revenue estimates, and the latest forecasts imply the business will grow sales slower than the wider market. With a serious cut to this year's expectations and a falling price target, we wouldn't be surprised if investors were becoming wary of CS Disco.
That said, the analysts might have good reason to be negative on CS Disco, given dilutive stock issuance over the past year. For more information, you can click here to discover this and the 2 other risks we've identified.
Another way to search for interesting companies that could be reaching an inflection point is to track whether management are buying or selling, with our free list of growing companies 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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