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Time To Worry? Analysts Are Downgrading Their Roivant Sciences Ltd. (NASDAQ:ROIV) Outlook

·3-min read

The latest analyst coverage could presage a bad day for Roivant Sciences Ltd. (NASDAQ:ROIV), with the analysts making across-the-board cuts to their statutory estimates that might leave shareholders a little shell-shocked. Revenue and earnings per share (EPS) forecasts were both revised downwards, with analysts seeing grey clouds on the horizon. Shares are up 7.9% to US$4.25 in the past week. We'd be curious to see if the downgrade is enough to reverse investor sentiment on the business.

Following the latest downgrade, the current consensus, from the eight analysts covering Roivant Sciences, is for revenues of US$25m in 2023, which would reflect a disturbing 55% reduction in Roivant Sciences' sales over the past 12 months. Per-share losses are expected to explode, reaching US$1.51 per share. Yet prior to the latest estimates, the analysts had been forecasting revenues of US$40m and losses of US$1.30 per share in 2023. Ergo, there's been a clear change in sentiment, with the analysts administering a notable cut to this year's revenue estimates, while at the same time increasing their loss per share forecasts.

Check out our latest analysis for Roivant Sciences

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earnings-and-revenue-growth

The consensus price target fell 12% to US$10.14, implicitly signalling that lower earnings per share are a leading indicator for Roivant Sciences' valuation. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company's valuation. The most optimistic Roivant Sciences analyst has a price target of US$16.00 per share, while the most pessimistic values it at US$7.00. This is a fairly broad spread of estimates, suggesting that the analysts are forecasting a wide range of possible outcomes for the business.

Looking at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up against both past performance and industry growth estimates. These estimates imply that sales are expected to slow, with a forecast annualised revenue decline of 66% by the end of 2023. This indicates a significant reduction from annual growth of 24% over the last three years. By contrast, our data suggests that other companies (with analyst coverage) in the same industry are forecast to see their revenue grow 3.6% annually for the foreseeable future. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - Roivant 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. 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 Roivant Sciences.

Even so, the longer term trajectory of the business is much more important for the value creation of shareholders. At Simply Wall St, we have a full range of analyst estimates for Roivant Sciences going out to 2025, 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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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