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One thing we could say about the analysts on Applied Optoelectronics, Inc. (NASDAQ:AAOI) – they aren’t optimistic, having just made a major negative revision to their near-term (statutory) forecasts for the organization. This report focused on revenue estimates, and it looks as though the consensus view of the business has become substantially more conservative.

After this downgrade, Applied Optoelectronics’ nine analysts are now forecasting revenues of US$285m in 2021. This would be a sizeable 42% improvement in sales compared to the last 12 months. Before the latest update, the analysts were foreseeing US$339m of revenue in 2021. It looks like forecasts have become a fair bit less optimistic on Applied Optoelectronics, given the measurable cut to revenue estimates.

See our latest analysis for Applied Optoelectronics

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The consensus price target fell 26% to US$12.25, with the analysts clearly less optimistic about Applied Optoelectronics’ valuation following this update. 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$22.00 and the most bearish at US$8.00 per share. 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. With this in mind, we wouldn’t rely too heavily on the consensus price target, as it is just an average and analysts clearly have some deeply divergent views on 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. For example, we noticed that Applied Optoelectronics’ rate of growth is expected to accelerate meaningfully, with revenues forecast to grow 42%, well above its historical decline of 1.5% a year over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in the industry are forecast to see their revenue grow 3.2% per year. Not only are Applied Optoelectronics’ revenues expected to improve, it seems that the analysts are also expecting it to grow faster than the wider industry.

The Bottom Line

The clear low-light was that analysts slashing their revenue forecasts for Applied Optoelectronics next year. They’re also forecasting more rapid revenue growth than the wider market. Furthermore, there was a cut to the price target, suggesting that the latest news has led to more pessimism about the intrinsic value of the business. Overall, given the drastic downgrade to next year’s forecasts, we’d be feeling a little more wary of Applied Optoelectronics going forwards.

That said, the analysts might have good reason to be negative on Applied Optoelectronics, given dilutive stock issuance over the past year. Learn more, and discover the 3 other warning signs we’ve identified, for 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.

This article by Simply Wall St is general in nature. 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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