Market forces rained on the parade of Sigma Lithium Corporation (NASDAQ:SGML) shareholders today, when the analysts downgraded their 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.      The stock price has risen 4.3% to US$17.73 over the past week.  Investors could be forgiven for changing their mind on the business following the downgrade; but it's not clear if the revised forecasts will lead to selling activity.  

Following the downgrade, the current consensus from Sigma Lithium's five analysts is for revenues of CA$354m in 2024 which - if met - would reflect a substantial 53% increase on its sales over the past 12 months.     The losses are expected to disappear over the next year or so, with forecasts for a profit of CA$0.61 per share this year.      Before this latest update, the analysts had been forecasting revenues of CA$605m and earnings per share (EPS) of CA$0.42 in 2024.        Thus, there's been a definite swing in sentiment, with the analysts making a considerable reduction to this year's revenue estimates, while at the same time substantially upgrading EPS. It's almost as though the business is forecast to reduce its focus on growth to enhance profitability.    

NasdaqCM:SGML Earnings and Revenue Growth May 21st 2024

There's been a 5.3% lift in the price target to US$26.40, with the analysts signalling that the higher earnings forecasts are more relevant to the business than the weaker revenue estimates.    

These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the Sigma Lithium's past performance and to peers in the same industry.     It's pretty clear that there is an expectation that Sigma Lithium's revenue growth will slow down substantially, with revenues to the end of 2024 expected to display 76% growth on an annualised basis. This is compared to a historical growth rate of 100% over the past five years.    Juxtapose this against the other companies in the industry with analyst coverage, which are forecast to grow their revenues (in aggregate) 5.4% per year.  Even after the forecast slowdown in growth, it seems obvious that Sigma Lithium is also expected to grow faster than the wider industry.    

The Bottom Line

The most important thing to take away from this upgrade is that analysts upgraded their earnings per share estimates for this year, expecting improving business conditions.        Unfortunately, analysts also downgraded their revenue estimates, although our data indicates revenues are expected to perform better than the wider market.        There was also an increase in the price target, suggesting that there is more optimism baked into the forecasts than there was previously.    Often, one downgrade can set off a daisy-chain of cuts, especially if an industry is in decline. So we wouldn't be surprised if the market became a lot more cautious on Sigma Lithium after today.  

With that said, the long-term trajectory of the company's earnings is a lot more important than next year.   We have estimates - from multiple Sigma Lithium analysts - going out to 2026, and you can see them free on our platform here.

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