It's been a pretty great week for The Honest Company, Inc. (NASDAQ:HNST) shareholders, with its shares surging 11% to US$4.39 in the week since its latest quarterly results. The results don't look great, especially considering that statutory losses grew 12% toUS$0.11 per share. Revenues of US$78,493,000 did beat expectations by 3.6%, but it looks like a bit of a cold comfort. Following the result, the analysts have 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. With this in mind, we've gathered the latest statutory forecasts to see what the analysts are expecting for next year.
After the latest results, the seven analysts covering Honest Company are now predicting revenues of US$318.9m in 2022. If met, this would reflect a modest 2.8% improvement in sales compared to the last 12 months. The loss per share is expected to ameliorate slightly, reducing to US$0.40. Before this earnings announcement, the analysts had been modelling revenues of US$317.3m and losses of US$0.33 per share in 2022. While this year's revenue estimates held steady, there was also a considerable increase in loss per share expectations, suggesting the consensus has a bit of a mixed view on the stock.
The consensus price target fell 14% to US$4.67per share, with the analysts clearly concerned by ballooning losses. The consensus price target is just an average of individual analyst targets, so - it could be handy to see how wide the range of underlying estimates is. The most optimistic Honest Company analyst has a price target of US$12.00 per share, while the most pessimistic values it at US$3.00. We would probably assign less value to the analyst 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 the consensus price target, as it is just an average and analysts clearly have some deeply divergent views on the business.
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. One thing stands out from these estimates, which is that Honest Company is forecast to grow faster in the future than it has in the past, with revenues expected to display 5.7% annualised growth until the end of 2022. If achieved, this would be a much better result than the 0.4% annual decline over the past year. Compare this against analyst estimates for the broader industry, which suggest that (in aggregate) industry revenues are expected to grow 9.1% annually for the foreseeable future. Although Honest Company's revenues are expected to improve, it seems that the analysts are still bearish on the business, forecasting it to grow slower than the broader industry.
The Bottom Line
The most important thing to take away is that the analysts increased their loss per share estimates for next year. On the plus side, there were no major changes to revenue estimates; although forecasts imply revenues will perform worse than the wider industry. The consensus price target fell measurably, with the analysts seemingly not reassured by the latest results, leading to a lower estimate of Honest Company's future valuation.
Following on from that line of thought, we think that the long-term prospects of the business are much more relevant than next year's earnings. At Simply Wall St, we have a full range of analyst estimates for Honest Company going out to 2024, and you can see them free on our platform here..
You should always think about risks though. Case in point, we've spotted 4 warning signs for Honest Company you should be aware of.
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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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