Today is shaping up negative for Neuronetics, Inc. (NASDAQ:STIM) shareholders, with the analysts delivering a substantial negative revision to next year's forecasts. There was a fairly draconian cut to their revenue estimates, perhaps an implicit admission that previous forecasts were much too optimistic.

After the downgrade, the four analysts covering Neuronetics are now predicting revenues of US$77m in 2025. If met, this would reflect a satisfactory 5.9% improvement in sales compared to the last 12 months. Losses are predicted to fall substantially, shrinking 44% to US$0.67 per share. However, before this estimates update, the consensus had been expecting revenues of US$87m and US$0.63 per share in losses. So there's been quite a change-up of views after the recent consensus updates, with the analysts making a serious cut to their revenue forecasts while also expecting losses per share to increase.

The consensus price target fell 20% to US$2.67, implicitly signalling that lower earnings per share are a leading indicator for Neuronetics' valuation.

Looking at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up against both past performance and industry growth estimates. It's pretty clear that there is an expectation that Neuronetics' revenue growth will slow down substantially, with revenues to the end of 2025 expected to display 4.7% growth on an annualised basis. This is compared to a historical growth rate of 6.2% over the past five years. Compare this against other companies (with analyst forecasts) in the industry, which are in aggregate expected to see revenue growth of 8.2% annually. So it's pretty clear that, while revenue growth is expected to slow down, the wider industry is also expected to grow faster than Neuronetics.

The Bottom Line

The most important thing to note from this downgrade is that the consensus increased its forecast losses next year, suggesting all may not be well at Neuronetics. 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 Neuronetics' future valuation. Given the stark change in sentiment, we'd understand if investors became more cautious on Neuronetics after today.

There might be good reason for analyst bearishness towards Neuronetics, like a short cash runway. Learn more, and discover the 3 other risks we've identified, for 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 with high insider ownership.

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