Advertisement

Need To Know: Analysts Just Made A Substantial Cut To Their Knight Therapeutics Inc. (TSE:GUD) Estimates

Today is shaping up negative for Knight Therapeutics Inc. (TSE:GUD) shareholders, with the analysts delivering a substantial negative revision to this year's forecasts. Both revenue and earnings per share (EPS) estimates were cut sharply as the analysts factored in the latest outlook for the business, concluding that they were too optimistic previously.

Following the downgrade, the most recent consensus for Knight Therapeutics from its seven analysts is for revenues of CA$215m in 2020 which, if met, would be a major 137% increase on its sales over the past 12 months. Following this this downgrade, earnings are now expected to tip over into loss-making territory, with the analysts forecasting losses of CA$0.018 per share in 2020. Prior to this update, the analysts had been forecasting revenues of CA$246m and earnings per share (EPS) of CA$0.16 in 2020. There looks to have been a major change in sentiment regarding Knight Therapeutics' prospects, with a measurable cut to revenues and the analysts now forecasting a loss instead of a profit.

Check out our latest analysis for Knight Therapeutics

TSX:GUD Earnings and Revenue Growth July 1st 2020
TSX:GUD Earnings and Revenue Growth July 1st 2020

The consensus price target fell 5.5% to CA$8.84, implicitly signalling that lower earnings per share are a leading indicator for Knight Therapeutics' valuation. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company's valuation. There are some variant perceptions on Knight Therapeutics, with the most bullish analyst valuing it at CA$10.50 and the most bearish at CA$8.00 per share. Even so, with a relatively close grouping of estimates, it looks like the analysts are quite confident in their valuations, suggesting Knight Therapeutics is an easy business to forecast or the underlying assumptions are obvious.

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. It's clear from the latest estimates that Knight Therapeutics' rate of growth is expected to accelerate meaningfully, with the forecast 137% revenue growth noticeably faster than its historical growth of 67% p.a. over the past five years. Compare this with other companies in the same industry, which are forecast to grow their revenue 33% next year. It seems obvious that, while the growth outlook is brighter than the recent past, the analysts also expect Knight Therapeutics to grow faster than the wider industry.

The Bottom Line

The most important thing to take away is that analysts are expecting Knight Therapeutics to become unprofitable this year. While analysts did downgrade their revenue estimates, these forecasts still imply revenues will perform better than the wider market. Given the scope of the downgrades, it would not be a surprise to see the market become more wary of the business.

Still, 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 Knight Therapeutics going out to 2023, and you can see them free on our platform here.

Another way to search for interesting companies that could be reaching an inflection point is to track whether management are buying or selling, with our free list of growing companies that insiders are buying.

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. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.