Today is shaping up negative for Serko Limited (NZSE:SKO) shareholders, with the analysts delivering a substantial negative revision to this year's forecasts. Revenue and earnings per share (EPS) forecasts were both revised downwards, with the analysts seeing grey clouds on the horizon.

Following the downgrade, the most recent consensus for Serko from its four analysts is for revenues of NZ$27m in 2022 which, if met, would be a sizeable 84% increase on its sales over the past 12 months. After this downgrade, the company is anticipated to report a loss of NZ$0.25 in 2022, a sharp decline from a profit over the last year. However, before this estimates update, the consensus had been expecting revenues of NZ$39m and NZ$0.12 per share in losses. Ergo, there's been a clear change in sentiment, with the analysts administering a notable cut to this year's revenue estimates, while at the same time increasing their loss per share forecasts.

See our latest analysis for Serko

The consensus price target was broadly unchanged at NZ$7.50, perhaps implicitly signalling that the weaker earnings outlook is not expected to have a long-term impact on the valuation. The consensus price target is just an average of individual analyst targets, so - it could be handy to see how wide the range of underlying estimates is. There are some variant perceptions on Serko, with the most bullish analyst valuing it at NZ$8.31 and the most bearish at NZ$6.00 per share. There are definitely some different views on the stock, but the range of estimates is not wide enough as to imply that the situation is unforecastable, in our view.

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. The analysts are definitely expecting Serko's growth to accelerate, with the forecast 84% annualised growth to the end of 2022 ranking favourably alongside historical growth of 2.4% per annum 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 18% per year. Factoring in the forecast acceleration in revenue, it's pretty clear that Serko is expected to grow much faster than its industry.

The Bottom Line

The most important thing to take away is that analysts increased their loss per share estimates for this year. Unfortunately, analysts also downgraded their revenue estimates, although our data indicates revenues are expected to perform better than the wider market. We're also surprised to see that the price target went unchanged. Still, deteriorating business conditions (assuming accurate forecasts!) can be a leading indicator for the stock price, so we wouldn't blame investors for being more cautious on Serko after the downgrade.

With that said, the long-term trajectory of the company's earnings is a lot more important than next year. At Simply Wall St, we have a full range of analyst estimates for Serko going out to 2024, 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.

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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