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Today is shaping up negative for Auxly Cannabis Group Inc. (TSE:XLY) shareholders, with the analysts delivering a substantial negative revision to this year's forecasts. Revenue estimates were cut sharply as the analysts signalled a weaker outlook - perhaps a sign that investors should temper their expectations as well.
After this downgrade, Auxly Cannabis Group's four analysts are now forecasting revenues of CA$114m in 2022. This would be a decent 18% improvement in sales compared to the last 12 months. Losses are forecast to hold steady at around CA$0.083. Yet prior to the latest estimates, the analysts had been forecasting revenues of CA$135m and losses of CA$0.08 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.
The consensus price target fell 22% to CA$0.33, implicitly signalling that lower earnings per share are a leading indicator for Auxly Cannabis Group's valuation. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. There are some variant perceptions on Auxly Cannabis Group, with the most bullish analyst valuing it at CA$0.40 and the most bearish at CA$0.20 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.
One way to get more context on these forecasts is to look at how they compare to both past performance, and how other companies in the same industry are performing. We would highlight that Auxly Cannabis Group's revenue growth is expected to slow, with the forecast 24% annualised growth rate until the end of 2022 being well below the historical 74% p.a. growth over the last five years. Compare this to the 142 other companies in this industry with analyst coverage, which are forecast to grow their revenue at 23% per year. So it's pretty clear that, while Auxly Cannabis Group's revenue growth is expected to slow, it's expected to grow roughly in line with the industry.
The Bottom Line
The most important thing to take away is that analysts increased their loss per share estimates for this year. There was also a drop in their revenue estimates, although as we saw earlier, forecast growth is only expected to be about the same as the wider market. Furthermore, there was a cut to the price target, suggesting that the latest news has led to more pessimism about the intrinsic value of the business. 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 Auxly Cannabis Group after today.
There might be good reason for analyst bearishness towards Auxly Cannabis Group, like a short cash runway. For more information, you can click here to discover this and the 1 other warning sign we've identified.
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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.