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Today is shaping up negative for Ontrak, Inc. (NASDAQ:OTRK) 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 current consensus from Ontrak's seven analysts is for revenues of US$97m in 2021 which - if met - would reflect a solid 17% increase on its sales over the past 12 months. Per-share losses are expected to see a sharp uptick, reaching US$1.61. Yet before this consensus update, the analysts had been forecasting revenues of US$165m and losses of US$0.60 per share in 2021. 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.
Check out our latest analysis for Ontrak
The consensus price target fell 54% to US$42.14, implicitly signalling that lower earnings per share are a leading indicator for Ontrak's 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 Ontrak analyst has a price target of US$73.00 per share, while the most pessimistic values it at US$30.00. As you can see the range of estimates is wide, with the lowest valuation coming in at less than half the most bullish estimate, suggesting there are some strongly diverging views on how think this business will perform. 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.
Of course, another way to look at these forecasts is to place them into context against the industry itself. It's pretty clear that there is an expectation that Ontrak's revenue growth will slow down substantially, with revenues to the end of 2021 expected to display 17% growth on an annualised basis. This is compared to a historical growth rate of 58% over the past five years. By way of comparison, the other companies in this industry with analyst coverage are forecast to grow their revenue at 7.1% annually. So it's pretty clear that, while Ontrak's revenue growth is expected to slow, it's still expected to grow faster than the industry itself.
The Bottom Line
The most important thing to take away is that analysts increased their loss per share estimates for 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.