Market forces rained on the parade of Smith Micro Software, Inc. (NASDAQ:SMSI) shareholders today, when the analysts downgraded their forecasts for next year. Revenue and earnings per share (EPS) forecasts were both revised downwards, with analysts seeing grey clouds on the horizon.
After the downgrade, the consensus from Smith Micro Software's three analysts is for revenues of US$40m in 2024, which would reflect a considerable 9.2% decline in sales compared to the last year of performance. Losses are predicted to fall substantially, shrinking 49% to US$0.20 per share. However, before this estimates update, the consensus had been expecting revenues of US$48m and US$0.14 per share in losses. Ergo, there's been a clear change in sentiment, with the analysts administering a notable cut to next year's revenue estimates, while at the same time increasing their loss per share forecasts.
See our latest analysis for Smith Micro Software
NasdaqCM:SMSI Earnings and Revenue Growth November 13th 2023
The consensus price target fell 14% to US$3.17, implicitly signalling that lower earnings per share are a leading indicator for Smith Micro Software's valuation.
Looking at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up against both past performance and industry growth estimates. We would highlight that sales are expected to reverse, with a forecast 7.4% annualised revenue decline to the end of 2024. That is a notable change from historical growth of 9.4% 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 12% annually for the foreseeable future. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - Smith Micro Software is expected to lag the wider industry.
The Bottom Line
The most important thing to take away is that analysts increased their loss per share estimates for next year. Regrettably, they also downgraded their revenue estimates, and the latest forecasts imply the business will grow sales slower than the wider market. After such a stark change in sentiment from analysts, we'd understand if readers now felt a bit wary of Smith Micro Software.
Even so, the longer term trajectory of the business is much more important for the value creation of shareholders. We have estimates - from multiple Smith Micro Software analysts - going out to 2025, 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.
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