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The analysts covering Sutro Biopharma, Inc. (NASDAQ:STRO) delivered a dose of negativity to shareholders today, by making a substantial revision to their statutory forecasts for this year. Revenue estimates were cut sharply as the analysts signalled a weaker outlook – perhaps a sign that investors should temper their expectations as well.

After the downgrade, the consensus from Sutro Biopharma’s nine analysts is for revenues of US$40m in 2022, which would reflect a disturbing 25% decline in sales compared to the last year of performance. Losses are supposed to balloon 31% to US$3.19 per share. However, before this estimates update, the consensus had been expecting revenues of US$47m and US$3.03 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.

Check out our latest analysis for Sutro Biopharma

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The consensus price target fell 6.1% to US$28.63, implicitly signalling that lower earnings per share are a leading indicator for Sutro Biopharma’s 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. Currently, the most bullish analyst values Sutro Biopharma at US$37.00 per share, while the most bearish prices it at US$20.00. Analysts definitely have varying views on the business, but the spread of estimates is not wide enough in our view to suggest that extreme outcomes could await Sutro Biopharma shareholders.

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. We would highlight that sales are expected to reverse, with a forecast 32% annualised revenue decline to the end of 2022. That is a notable change from historical growth of 13% over the last three years. By contrast, our data suggests that other companies (with analyst coverage) in the same industry are forecast to see their revenue grow 12% annually for the foreseeable future. It’s pretty clear that Sutro Biopharma’s revenues are expected to perform substantially worse than the wider 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, and industry data suggests that Sutro Biopharma’s revenues are expected to grow 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 Sutro Biopharma’s future valuation. Given the stark change in sentiment, we’d understand if investors became more cautious on Sutro Biopharma after today.

Even so, the longer term trajectory of the business is much more important for the value creation of shareholders. At Simply Wall St, we have a full range of analyst estimates for Sutro Biopharma going out to 2024, and you can see them free on our platform here.

Another way to search for interesting companies that could be reaching an inflection point is to track whether management are buying or selling, with our free list of growing companies 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.