It's been a pretty great week for Ergomed plc (LON:ERGO) shareholders, with its shares surging 13% to UK£3.95 in the week since its latest full-year results. It was a credible result overall, with revenues of UK£68m and statutory earnings per share of UK£0.12 both in line with analyst estimates, showing that Ergomed is executing in line with expectations. Following the result, the analyst has updated their earnings model, and it would be good to know whether they think there's been a strong change in the company's prospects, or if it's business as usual. So we collected the latest post-earnings statutory consensus estimate to see what could be in store for next year.
Following the latest results, Ergomed's sole analyst are now forecasting revenues of UK£84.3m in 2020. This would be a sizeable 24% improvement in sales compared to the last 12 months. Statutory earnings per share are predicted to climb 17% to UK£0.14. Yet prior to the latest earnings, the analyst had been anticipated revenues of UK£86.7m and earnings per share (EPS) of UK£0.13 in 2020. So it's pretty clear that while sentiment around revenues has declined following the latest results, the analyst is now more bullish on the company's earnings power.
The average price target rose 6.4% to UK£5.00, with the analyst signalling that the improved earnings outlook is the key driver of value for shareholders - enough to offset the reduction in revenue estimates.
Taking a look at the bigger picture now, one of the ways we can understand these forecasts is to see how they compare to both past performance and industry growth estimates. We can infer from the latest estimates that forecasts expect a continuation of Ergomed's historical trends, as next year's 24% revenue growth is roughly in line with 22% annual revenue growth over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to see their revenue shrink 9.0% next year. So not only is Ergomed expected to maintain its revenue growth despite the wider downturn, it's also forecast to grow faster than the industry as a whole.
The Bottom Line
The biggest takeaway for us is the consensus earnings per share upgrade, which suggests a clear improvement in sentiment around Ergomed's earnings potential next year. Unfortunately, they also downgraded their revenue estimates, and our data indicates sales are expected to perform better than the wider industry. Even so, earnings per share are more important to the intrinsic value of the business. Still, earnings are more important to the intrinsic value of the business. There was also a nice increase in the price target, with the analyst clearly feeling that the intrinsic value of the business is improving.
With that in mind, we wouldn't be too quick to come to a conclusion on Ergomed. Long-term earnings power is much more important than next year's profits. At least one analyst has provided forecasts out to 2022, which can be seen for free on our platform here.
Even so, be aware that Ergomed is showing 3 warning signs in our investment analysis , you should know about...
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