The latest analyst coverage could presage a bad day for AppHarvest, Inc. (NASDAQ:APPH), 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.
Following the downgrade, the current consensus from AppHarvest's twin analysts is for revenues of US$21m in 2022 which - if met - would reflect a substantial 57% increase on its sales over the past 12 months. Losses are presumed to reduce, shrinking 16% from last year to US$1.32. Yet before this consensus update, the analysts had been forecasting revenues of US$27m and losses of US$1.16 per share in 2022. 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.
The consensus price target was broadly unchanged at US$6.50, perhaps implicitly signalling that the weaker earnings outlook is not expected to have a long-term impact on the 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. There are some variant perceptions on AppHarvest, with the most bullish analyst valuing it at US$9.00 and the most bearish at US$5.00 per share. This is a fairly broad spread of estimates, suggesting that the analysts are forecasting a wide range of possible outcomes for 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 period to the end of 2022 brings more of the same, according to the analysts, with revenue forecast to display 146% growth on an annualised basis. That is in line with its 142% annual growth over the past year. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to see their revenues grow 2.5% per year. So although AppHarvest is expected to maintain its revenue growth rate, it's definitely expected to grow faster than the wider industry.
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 AppHarvest. Unfortunately, analysts also downgraded their revenue estimates, although our data indicates revenues are expected to perform better than the wider market. We're also surprised to see that the price target went unchanged. Still, deteriorating business conditions (assuming accurate forecasts!) can be a leading indicator for the stock price, so we wouldn't blame investors for being more cautious on AppHarvest after the downgrade.
There might be good reason for analyst bearishness towards AppHarvest, like a short cash runway. For more information, you can click here to discover this and the 4 other warning signs 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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