The analysts covering Stem, Inc. (NYSE:STEM) delivered a dose of negativity to shareholders today, by making a substantial revision to their statutory forecasts for next year. Both revenue and earnings per share (EPS) forecasts went under the knife, suggesting analysts have soured majorly on the business.

After this downgrade, Stem's twelve analysts are now forecasting revenues of US$465m in 2025. This would be a huge 81% improvement in sales compared to the last 12 months. The loss per share is anticipated to greatly reduce in the near future, narrowing 88% to US$0.62. However, before this estimates update, the consensus had been expecting revenues of US$551m and US$0.56 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.

There was no major change to the consensus price target of US$2.07, signalling that the business is performing roughly in line with expectations, despite lower earnings per share forecasts.

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. The analysts are definitely expecting Stem's growth to accelerate, with the forecast 61% annualised growth to the end of 2025 ranking favourably alongside historical growth of 45% per annum over the past five years. Compare this with other companies in the same industry, which are forecast to grow their revenue 8.4% annually. Factoring in the forecast acceleration in revenue, it's pretty clear that Stem is expected to grow much faster than its industry.

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 Stem. While analysts did downgrade their revenue estimates, these forecasts still imply revenues will perform better than the wider market. The lack of change in the price target is puzzling in light of the downgrade but, with a serious decline expected next year, we wouldn't be surprised if investors were a bit wary of Stem.

So things certainly aren't looking great, and you should also know that we've spotted some potential warning signs with Stem, including dilutive stock issuance over the past year. For more information, you can click here to discover this and the 3 other risks we've identified.

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