Bearish: Analysts Just Cut Their Auxly Cannabis Group Inc. (TSE:XLY) Revenue and EPS estimates

·4 min read

One thing we could say about the analysts on Auxly Cannabis Group Inc. (TSE:XLY) - they aren't optimistic, having just made a major negative revision to their near-term (statutory) forecasts for the organization. Both revenue and earnings per share (EPS) forecasts went under the knife, suggesting analysts have soured majorly on the business. Investors however, have been notably more optimistic about Auxly Cannabis Group recently, with the stock price up a majestic 30% to CA$0.095 in the past week. Whether the downgrade will have a negative impact on demand for shares is yet to be seen.

Following this downgrade, Auxly Cannabis Group's four analysts are forecasting 2022 revenues to be CA$99m, approximately in line with the last 12 months. Losses are supposed to balloon 24% to CA$0.10 per share. Yet prior to the latest estimates, the analysts had been forecasting revenues of CA$111m and losses of CA$0.093 per share in 2022. 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.

View our latest analysis for Auxly Cannabis Group

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The consensus price target fell 25% to CA$0.22, implicitly signalling that lower earnings per share are a leading indicator for Auxly Cannabis Group's valuation. 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. Currently, the most bullish analyst values Auxly Cannabis Group at CA$0.40 per share, while the most bearish prices it at CA$0.08. We would probably assign less value to the forecasts in this situation, because such a wide range of estimates could imply that the future of this business is difficult to value accurately. With this in mind, we wouldn't rely too heavily on the consensus price target, as it is just an average and analysts clearly have some deeply divergent views on the business.

Of course, another way to look at these forecasts is to place them into context against the industry itself. It's pretty clear that there is an expectation that Auxly Cannabis Group's revenue growth will slow down substantially, with revenues to the end of 2022 expected to display 2.0% growth on an annualised basis. This is compared to a historical growth rate of 74% over the past five years. By way of comparison, the other companies in this industry with analyst coverage are forecast to grow their revenue at 23% per year. Factoring in the forecast slowdown in growth, it seems obvious that Auxly Cannabis Group is also expected to grow slower than other industry participants.

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 Auxly Cannabis Group.

After a downgrade like this, it's pretty clear that previous forecasts were too optimistic. What's more, we've spotted several possible issues with Auxly Cannabis Group's business, like a short cash runway. For more information, you can click here to discover this and the 4 other flags we've identified.

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.

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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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