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Market forces rained on the parade of Cara Therapeutics, Inc. (NASDAQ:CARA) shareholders today, when the analysts downgraded their forecasts for next year. Both revenue and earnings per share (EPS) forecasts went under the knife, suggesting the analysts have soured majorly on the business.
After this downgrade, Cara Therapeutics' eight analysts are now forecasting revenues of US$114m in 2023. This would be a major 188% improvement in sales compared to the last 12 months. The loss per share is anticipated to greatly reduce in the near future, narrowing 52% to US$0.80. Yet before this consensus update, the analysts had been forecasting revenues of US$130m and losses of US$0.47 per share in 2023. 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 Cara Therapeutics
The consensus price target was broadly unchanged at US$23.13, perhaps implicitly signalling that the weaker earnings outlook is not expected to have a long-term impact on the 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. Currently, the most bullish analyst values Cara Therapeutics at US$29.00 per share, while the most bearish prices it at US$13.00. This is a fairly broad spread of estimates, suggesting that the analysts are forecasting a wide range of possible outcomes for the business.
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. The analysts are definitely expecting Cara Therapeutics' growth to accelerate, with the forecast 133% annualised growth to the end of 2023 ranking favourably alongside historical growth of 43% per annum over the past five years. Compare this with other companies in the same industry, which are forecast to grow their revenue 4.6% annually. Factoring in the forecast acceleration in revenue, it's pretty clear that Cara Therapeutics 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 next 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 Cara Therapeutics after the downgrade.