Today is shaping up negative for Ballard Power Systems Inc. (TSE:BLDP) shareholders, with the analysts delivering a substantial negative revision to this year's forecasts. There was a fairly draconian cut to their revenue estimates, perhaps an implicit admission that previous forecasts were much too optimistic. The stock price has risen 6.6% to CA$7.38 over the past week. Investors could be forgiven for changing their mind on the business following the downgrade; but it's not clear if the revised forecasts will lead to selling activity.

Following the downgrade, the current consensus from Ballard Power Systems' 22 analysts is for revenues of US$102m in 2023 which - if met - would reflect a substantial 22% increase on its sales over the past 12 months. Losses are expected to be contained, narrowing 12% from last year to US$0.51. Yet prior to the latest estimates, the analysts had been forecasting revenues of US$117m and losses of US$0.51 per share in 2023. So there's definitely been a change in sentiment in this update, with the analysts administering a substantial haircut to this year's revenue estimates, while at the same time holding losses per share steady.

View our latest analysis for Ballard Power Systems

the analysts have cut their price target 5.3% to US$5.30 per share, signalling that the declining revenue and ongoing losses are contributing to the lower valuation. That's not the only conclusion we can draw from this data however, as some investors also like to consider the spread in estimates when evaluating analyst price targets. The most optimistic Ballard Power Systems analyst has a price target of US$11.78 per share, while the most pessimistic values it at US$4.97. We would probably assign less value to the forecasts in this situation, because such a wide range of estimates could imply that the future of this business is difficult to value accurately. 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.

Taking a look at the bigger picture now, one of the ways we can understand these forecasts is to see how they compare to both past performance and industry growth estimates. For example, we noticed that Ballard Power Systems' rate of growth is expected to accelerate meaningfully, with revenues forecast to exhibit 22% growth to the end of 2023 on an annualised basis. That is well above its historical decline of 2.8% a year over the past five years. Compare this against analyst estimates for the broader industry, which suggest that (in aggregate) industry revenues are expected to grow 37% annually for the foreseeable future. So although Ballard Power Systems' revenue growth is expected to improve, it is still expected to grow slower than the industry.

The Bottom Line

Regrettably, they also downgraded their revenue estimates, and the latest forecasts imply the business will grow sales slower than the wider market. The consensus price target fell measurably, with analysts seemingly not reassured by recent business developments, leading to a lower estimate of Ballard Power Systems' future valuation. 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 Ballard Power Systems after today.

With that said, the long-term trajectory of the company's earnings is a lot more important than next year. We have estimates - from multiple Ballard Power Systems analysts - going out to 2025, and you can see them 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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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.

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