June 26, 2022

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STEP) Business Prospects Have Improved Drastically

Shareholders in STEP Energy Services Ltd. (TSE:STEP) may be thrilled to learn that the analysts have just delivered a major upgrade to their near-term forecasts. The consensus statutory numbers for both revenue and earnings per share (EPS) increased, with their view clearly much more bullish on the company’s business prospects. STEP Energy Services has also found favour with investors, with the stock up a worthy 30{de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb} to CA$1.05 over the past week. We’ll be curious to see if these new estimates convince the market to lift the stock price higher still.

After the upgrade, the consensus from STEP Energy Services’ five analysts is for revenues of CA$410m in 2021, which would reflect a measurable 3.2{de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb} decline in sales compared to the last year of performance. The loss per share is anticipated to greatly reduce in the near future, narrowing 71{de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb} to CA$0.55. Yet prior to the latest estimates, the analysts had been forecasting revenues of CA$339m and losses of CA$0.71 per share in 2021. We can see there’s definitely been a change in sentiment in this update, with the analysts administering a sizeable upgrade to next year’s revenue estimates, while at the same time reducing their loss estimates.

View our latest analysis for STEP Energy Services

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It will come as no surprise to learn that the analysts have increased their price target for STEP Energy Services 81{de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb} to CA$1.10 on the back of these upgrades. The consensus price target is just an average of individual analyst targets, so – it could be handy to see how wide the range of underlying estimates is. There are some variant perceptions on STEP Energy Services, with the most bullish analyst valuing it at CA$2.00 and the most bearish at CA$0.45 per share. We would probably assign less value to the forecasts in this situation, because such a wide range of estimates could imply that the future of this business is difficult to value accurately. As a result it might not be possible to derive much meaning from the consensus price target, which is after all just an average of this wide range of estimates.

Another way we can view these estimates is in the context of the bigger picture, such as how the forecasts stack up against past performance, and whether forecasts are more or less bullish relative to other companies in the industry. These estimates imply that sales are expected to slow, with a forecast revenue decline of 3.2{de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb}, a significant reduction from annual growth of 23{de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb} over the last five years. By contrast, our data suggests that other companies (with analyst coverage) in the same industry are forecast to see their revenue grow 6.3{de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb} annually for the foreseeable future. It’s pretty clear that STEP Energy Services’ revenues are expected to perform substantially worse than the wider industry.

The Bottom Line

The highlight for us was that the consensus reduced its estimated losses next year, perhaps suggesting STEP Energy Services is moving incrementally towards profitability. Fortunately, they also upgraded their revenue estimates, and are forecasting revenues to grow slower than the wider market. Given that the consensus looks almost universally bullish, with a substantial increase to forecasts and a higher price target, STEP Energy Services could be worth investigating further.

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 STEP Energy Services going out to 2022, 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.

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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