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DIRTT Environmental Solutions Ltd. Earnings Missed Analyst Estimates: Here's What Analysts Are Forecasting Now

There's been a major selloff in DIRTT Environmental Solutions Ltd. (TSE:DRT) shares in the week since it released its annual report, with the stock down 41% to CA$2.43. Revenues fell 9.8% short of expectations, at US$248m. Earnings correspondingly dipped, with DIRTT Environmental Solutions reporting a statutory loss of US$0.051 per share, whereas analysts had previously modelled a profit in this period. Analysts typically update their forecasts at each earnings report, and we can judge from their estimates whether their view of the company has changed or if there are any new concerns to be aware of. So we gathered the latest post-earnings forecasts to see what analysts' statutory forecasts suggest is in store for next year.

View our latest analysis for DIRTT Environmental Solutions

TSX:DRT Past and Future Earnings, February 28th 2020
TSX:DRT Past and Future Earnings, February 28th 2020

After the latest results, the five analysts covering DIRTT Environmental Solutions are now predicting revenues of US$305.6m in 2020. If met, this would reflect a huge 23% improvement in sales compared to the last 12 months. Earnings are expected to improve, with DIRTT Environmental Solutions forecast to report a statutory profit of US$0.25 per share. In the lead-up to this report, analysts had been modelling revenues of US$257.9m and earnings per share (EPS) of US$0.13 in 2020. There has definitely been an improvement in perception after these results, with analysts noticeably increasing both their earnings and revenue estimates.

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Despite these upgrades, the consensus price target fell 33% to CA$4.00, perhaps signalling that the uplift in performance is not expected to last. 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 DIRTT Environmental Solutions analyst has a price target of CA$9.75 per share, while the most pessimistic values it at CA$2.00. 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 assign too much meaning to the consensus price target, as it is just an average and analysts clearly have some deeply divergent views on the business.

It can be useful to take a broader overview by seeing how analyst forecasts compare, both to the DIRTT Environmental Solutions's past performance and to peers in the same market. It's clear from the latest estimates that DIRTT Environmental Solutions's rate of growth is expected to accelerate meaningfully, with forecast 23% revenue growth noticeably faster than its historical growth of 11%p.a. over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to grow their revenue at 4.4% per year. Factoring in the forecast acceleration in revenue, it's pretty clear that DIRTT Environmental Solutions is expected to grow much faster than its market.

The Bottom Line

The most important thing to take away from this is that analysts upgraded their earnings per share estimates, suggesting that there has been a clear increase in optimism towards DIRTT Environmental Solutions following these results. Fortunately, they also upgraded their revenue estimates, and are forecasting revenues to grow faster than the wider market. Analysts also downgraded their price target, suggesting that the latest news has led analysts to become more pessimistic about the intrinsic value of the business.

Even so, the longer term trajectory of the business is much more important for the value creation of shareholders. We have estimates - from multiple DIRTT Environmental Solutions analysts - going out to 2024, and you can see them free on our platform here.

Another thing to consider is whether management and directors have been buying or selling stock recently. We provide an overview of all open market stock trades for the last twelve months on our platform, here.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.