Market forces rained on the parade of Redwood Trust, Inc. (NYSE:RWT) shareholders today, when the analysts 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.
After the downgrade, the consensus from Redwood Trust's five analysts is for revenues of US$142m in 2020, which would reflect a concerning 57% decline in sales compared to the last year of performance. Before the latest update, the analysts were foreseeing US$163m of revenue in 2020. The consensus view seems to have become more pessimistic on Redwood Trust, noting the measurable cut to revenue estimates in this update.
Notably, the analysts have cut their price target 5.6% to US$9.75, suggesting concerns around Redwood Trust'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. There are some variant perceptions on Redwood Trust, with the most bullish analyst valuing it at US$18.00 and the most bearish at US$5.00 per share. With such a wide range in price targets, the analysts are almost certainly betting on widely diverse outcomes for the underlying business. As a result it might not be possible to derive much meaning from the consensus price target, which is after all just an average of this wide range of estimates.
Of course, another way to look at these forecasts is to place them into context against the industry itself. We would highlight that sales are expected to reverse, with the forecast 57% revenue decline a notable change from historical growth of 1.9% over the last five years. By contrast, our data suggests that other companies (with analyst coverage) in the same industry are forecast to see their revenue grow 24% annually for the foreseeable future. It's pretty clear that Redwood Trust's revenues are expected to perform substantially worse than the wider industry.
The Bottom Line
The most important thing to take away is that analysts cut their revenue estimates for this year. They also expect company revenue to perform worse than the wider market. After such a stark change in sentiment from analysts, we'd understand if readers now felt a bit wary of Redwood Trust.
So things certainly aren't looking great, and you should also know that we've spotted some potential warning signs with Redwood Trust, including dilutive stock issuance over the past year. Learn more, and discover the 2 other risks we've identified, for free on our platform here.
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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