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Market forces rained on the parade of Aquafil S.p.A. (BIT:ECNL) shareholders today, when the covering analyst downgraded their forecasts for this year. This report focused on revenue estimates, and it looks as though the consensus view of the business has become substantially more conservative.
Following the latest downgrade, the current consensus, from the solo analyst covering Aquafil, is for revenues of €450m in 2020, which would reflect a definite 17% reduction in Aquafil's sales over the past 12 months. Before the latest update, the analyst was foreseeing €550m of revenue in 2020. It looks like forecasts have become a fair bit less optimistic on Aquafil, given the substantial drop in revenue estimates.
The consensus price target fell 21% to €6.65, with the analyst clearly less optimistic about Aquafil's valuation following this update. There's another way to think about price targets though, and that's to look at the range of price targets put forward by analysts, because a wide range of estimates could suggest a diverse view on possible outcomes for the business. The most optimistic Aquafil analyst has a price target of €8.30 per share, while the most pessimistic values it at €5.00. These price targets show that analysts do have some differing views on the business, but the estimates do not vary enough to suggest to us that some are betting on wild success or utter failure.
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 revenue decline of 17%, a significant reduction from annual growth of 2.7% over the last three years. Compare this with our data, which suggests that other companies in the same industry are, in aggregate, expected to see their revenue grow 5.8% next year. It's pretty clear that Aquafil's revenues are expected to perform substantially worse than the wider industry.
The Bottom Line
The most important thing to take away is that the analyst cut their revenue estimates for this year. They also expect company revenue to perform worse than the wider market. The consensus price target fell measurably, with the analyst seemingly not reassured by recent business developments, leading to a lower estimate of Aquafil's future valuation. Often, one downgrade can set off a daisy-chain of cuts, especially if an industry is in decline. So we wouldn't be surprised if the market became a lot more cautious on Aquafil after today.
That said, the analyst might have good reason to be negative on Aquafil, given a weak balance sheet. For more information, you can click here to discover this and the 5 other concerns we've identified.
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