Some Applied Optoelectronics, Inc. (NASDAQ:AAOI) Analysts Just Made A Major Cut To Next Year's Estimates

Today is shaping up negative for Applied Optoelectronics, Inc. (NASDAQ:AAOI) shareholders, with the analysts delivering a substantial negative revision to this year's forecasts. Both revenue and earnings per share (EPS) forecasts went under the knife, suggesting the analysts have soured majorly on the business.

After the downgrade, the consensus from Applied Optoelectronics' three analysts is for revenues of US$202m in 2023, which would reflect an uneasy 9.7% decline in sales compared to the last year of performance. The loss per share is anticipated to greatly reduce in the near future, narrowing 29% to US$1.63. However, before this estimates update, the consensus had been expecting revenues of US$244m and US$1.07 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 Applied Optoelectronics

The consensus price target fell 29% to US$3.75, implicitly signalling that lower earnings per share are a leading indicator for Applied Optoelectronics' valuation. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. There are some variant perceptions on Applied Optoelectronics, with the most bullish analyst valuing it at US$5.00 and the most bearish at US$2.50 per share. Note the wide gap in analyst price targets? This implies to us that there is a fairly broad range of possible scenarios for the underlying 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. One more thing stood out to us about these estimates, and it's the idea that Applied Optoelectronics' decline is expected to accelerate, with revenues forecast to fall at an annualised rate of 13% to the end of 2023. This tops off a historical decline of 6.8% a year over the past five years. Compare this against analyst estimates for companies in the broader industry, which suggest that revenues (in aggregate) are expected to grow 4.8% annually. So while a broad number of companies are forecast to grow, unfortunately Applied Optoelectronics is expected to see its sales affected worse than other companies in the industry.

The Bottom Line

The most important thing to take away is that analysts increased their loss per share estimates for this year. Regrettably, they also downgraded their revenue estimates, and the latest forecasts imply the business will grow sales slower than the wider market. With a serious cut to this year's expectations and a falling price target, we wouldn't be surprised if investors were becoming wary of Applied Optoelectronics.

Still, the long-term prospects of the business are much more relevant than next year's earnings. We have estimates - from multiple Applied Optoelectronics analysts - 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.

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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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