Dj Ardmore Shipping Price Target Cut To $17.00/Share From $20.00 By Jefferies

Ardmore Shipping (ASC) has been one of the most searched-for stocks on Zacks.com lately. So, you might want to look at some of the facts that could shape the stock's performance in the near term.

Shares of this shipping company have returned -31.2% over the past month versus the Zacks S&P 500 composite's +4.4% change. The Zacks Transportation - Shipping industry, to which Ardmore Shipping belongs, has lost 5.4% over this period. Now the key question is: Where could the stock be headed in the near term?

Although media reports or rumors about a significant change in a company's business prospects usually cause its stock to trend and lead to an immediate price change, there are always certain fundamental factors that ultimately drive the buy-and-hold decision.

Revisions to Earnings Estimates

Here at Zacks, we prioritize appraising the change in the projection of a company's future earnings over anything else. That's because we believe the present value of its future stream of earnings is what determines the fair value for its stock.

We essentially look at how sell-side analysts covering the stock are revising their earnings estimates to reflect the impact of the latest business trends. And if earnings estimates go up for a company, the fair value for its stock goes up. A higher fair value than the current market price drives investors' interest in buying the stock, leading to its price moving higher. This is why empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock price movements.

Ardmore Shipping is expected to post earnings of $0.39 per share for the current quarter, representing a year-over-year change of -38.1%. Over the last 30 days, the Zacks Consensus Estimate has changed -36.6%.

The consensus earnings estimate of $2.99 for the current fiscal year indicates a year-over-year change of +10.3%. This estimate has changed -13.9% over the last 30 days.

For the next fiscal year, the consensus earnings estimate of $1.80 indicates a change of -39.8% from what Ardmore Shipping is expected to report a year ago. Over the past month, the estimate has changed -14.3%.

With an impressive externally audited track record, our proprietary stock rating tool -- the Zacks Rank -- is a more conclusive indicator of a stock's near-term price performance, as it effectively harnesses the power of earnings estimate revisions. The size of the recent change in the consensus estimate, along with three other factors related to earnings estimates, has resulted in a Zacks Rank #5 (Strong Sell) for Ardmore Shipping.

The chart below shows the evolution of the company's forward 12-month consensus EPS estimate:

12 Month EPS

Projected Revenue Growth

Even though a company's earnings growth is arguably the best indicator of its financial health, nothing much happens if it cannot raise its revenues. It's almost impossible for a company to grow its earnings without growing its revenue for long periods. Therefore, knowing a company's potential revenue growth is crucial.

For Ardmore Shipping, the consensus sales estimate for the current quarter of $53.93 million indicates a year-over-year change of -17.9%. For the current and next fiscal years, $277.84 million and $211.78 million estimates indicate +5.2% and -23.8% changes, respectively.

Last Reported Results and Surprise History

Ardmore Shipping reported revenues of $61.54 million in the last reported quarter, representing a year-over-year change of +9.3%. EPS of $0.55 for the same period compares with $0.49 a year ago.

Compared to the Zacks Consensus Estimate of $60.77 million, the reported revenues represent a surprise of +1.27%. The EPS surprise was +3.77%.

The company beat consensus EPS estimates in each of the trailing four quarters. The company topped consensus revenue estimates each time over this period.

Valuation

Without considering a stock's valuation, no investment decision can be efficient. In predicting a stock's future price performance, it's crucial to determine whether its current price correctly reflects the intrinsic value of the underlying business and the company's growth prospects.

While comparing the current values of a company's valuation multiples, such as price-to-earnings (P/E), price-to-sales (P/S) and price-to-cash flow (P/CF), with its own historical values helps determine whether its stock is fairly valued, overvalued, or undervalued, comparing the company relative to its peers on these parameters gives a good sense of the reasonability of the stock's price.

The Zacks Value Style Score (part of the Zacks Style Scores system), which pays close attention to both traditional and unconventional valuation metrics to grade stocks from A to F (an An is better than a B; a B is better than a C; and so on), is pretty helpful in identifying whether a stock is overvalued, rightly valued, or temporarily undervalued.

Ardmore Shipping is graded A on this front, indicating that it is trading at a discount to its peers. Click here to see the values of some of the valuation metrics that have driven this grade.

Conclusion

The facts discussed here and much other information on Zacks.com might help determine whether or not it's worthwhile paying attention to the market buzz about Ardmore Shipping. However, its Zacks Rank #5 does suggest that it may underperform the broader market in the near term.

Zacks Investment Research

Investors often turn to recommendations made by Wall Street analysts before making a Buy, Sell, or Hold decision about a stock. While media reports about rating changes by these brokerage-firm employed (or sell-side) analysts often affect a stock's price, do they really matter?

Before we discuss the reliability of brokerage recommendations and how to use them to your advantage, let's see what these Wall Street heavyweights think about Ardmore Shipping (ASC).

Ardmore Shipping currently has an average brokerage recommendation (ABR) of 1.67, on a scale of 1 to 5 (Strong Buy to Strong Sell), calculated based on the actual recommendations (Buy, Hold, Sell, etc.) made by six brokerage firms. An ABR of 1.67 approximates between Strong Buy and Buy.

Of the six recommendations that derive the current ABR, four are Strong Buy, representing 66.7% of all recommendations.

Brokerage Recommendation Trends for ASC

While the ABR calls for buying Ardmore Shipping, it may not be wise to make an investment decision solely based on this information. Several studies have shown limited to no success of brokerage recommendations in guiding investors to pick stocks with the best price increase potential.

Do you wonder why? As a result of the vested interest of brokerage firms in a stock they cover, their analysts tend to rate it with a strong positive bias. According to our research, brokerage firms assign five "Strong Buy" recommendations for every "Strong Sell" recommendation.

In other words, their interests aren't always aligned with retail investors, rarely indicating where the price of a stock could actually be heading. Therefore, the best use of this information could be validating your own research or an indicator that has proven to be highly successful in predicting a stock's price movement.

Zacks Rank, our proprietary stock rating tool with an impressive externally audited track record, categorizes stocks into five groups, ranging from Zacks Rank #1 (Strong Buy) to Zacks Rank #5 (Strong Sell), and is an effective indicator of a stock's price performance in the near future. Therefore, using the ABR to validate the Zacks Rank could be an efficient way of making a profitable investment decision.

Zacks Rank Should Not Be Confused With ABR

Although both Zacks Rank and ABR are displayed in a range of 1-5, they are different measures altogether.

The ABR is calculated solely based on brokerage recommendations and is typically displayed with decimals (example: 1.28). In contrast, the Zacks Rank is a quantitative model allowing investors to harness the power of earnings estimate revisions. It is displayed in whole numbers -- 1 to 5.

Analysts employed by brokerage firms have been and continue to be overly optimistic with their recommendations. Since the ratings issued by these analysts are more favorable than their research would support because of the vested interest of their employers, they mislead investors far more often than they guide.

On the other hand, earnings estimate revisions are at the core of the Zacks Rank. And empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock price movements.

In addition, the different Zacks Rank grades are applied proportionately to all stocks for which brokerage analysts provide current-year earnings estimates. In other words, this tool always maintains a balance among its five ranks.

There is also a key difference between the ABR and Zacks Rank when it comes to freshness. When you look at the ABR, it may not be up-to-date. Nonetheless, since brokerage analysts constantly revise their earnings estimates to reflect changing business trends, and their actions get reflected in the Zacks Rank quickly enough, it is always timely in predicting future stock prices.

Should You Invest in ASC?

Looking at the earnings estimate revisions for Ardmore Shipping, the Zacks Consensus Estimate for the current year has declined 14% over the past month to $2.98.

Analysts' growing pessimism over the company's earnings prospects, as indicated by strong agreement among them in revising EPS estimates lower, could be a legitimate reason for the stock to plunge in the near term.

The size of the recent change in the consensus estimate, along with three other factors related to earnings estimates, has resulted in a Zacks Rank #5 (Strong Sell) for Ardmore Shipping. You can see the complete list of today's Zacks Rank #1 (Strong Buy) stocks here

Therefore, it could be wise to take the Buy-equivalent ABR for Ardmore Shipping with a grain of salt.

Zacks Investment Research

Ardmore Shipping (ASC) came out with quarterly earnings of $0.55 per share, beating the Zacks Consensus Estimate of $0.53 per share. This compares to earnings of $0.49 per share a year ago. These figures are adjusted for non-recurring items.

This quarterly report represents an earnings surprise of 3.77%. A quarter ago, it was expected that this shipping company would post earnings of $1.08 per share when it actually produced earnings of $1.13, delivering a surprise of 4.63%.

Over the last four quarters, the company has surpassed consensus EPS estimates four times.

Ardmore Shipping, which belongs to the Zacks Transportation - Shipping industry, posted revenues of $61.54 million for the quarter ended September 2024, surpassing the Zacks Consensus Estimate by 1.27%. This compares to year-ago revenues of $56.3 million. The company has topped consensus revenue estimates four times over the last four quarters.

The sustainability of the stock's immediate price movement based on the recently-released numbers and future earnings expectations will mostly depend on management's commentary on the earnings call.

Ardmore Shipping shares have lost about 2.5% since the beginning of the year versus the S&P 500's gain of 21.2%.

What's Next for Ardmore Shipping?

While Ardmore Shipping has underperformed the market so far this year, the question that comes to investors' minds is: what's next for the stock?

There are no easy answers to this key question, but one reliable measure that can help investors address this is the company's earnings outlook. Not only does this include current consensus earnings expectations for the coming quarter(s), but also how these expectations have changed lately.

Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions. Investors can track such revisions by themselves or rely on a tried-and-tested rating tool like the Zacks Rank, which has an impressive track record of harnessing the power of earnings estimate revisions.

Ahead of this earnings release, the estimate revisions trend for Ardmore Shipping: unfavorable. While the magnitude and direction of estimate revisions could change following the company's just-released earnings report, the current status translates into a Zacks Rank #5 (Strong Sell) for the stock. So, the shares are expected to underperform the market in the near future. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

It will be interesting to see how estimates for the coming quarters and current fiscal year change in the days ahead. The current consensus EPS estimate is $0.56 on $58.5 million in revenues for the coming quarter and $3.14 on $281.63 million in revenues for the current fiscal year.

Investors should be mindful of the fact that the outlook for the industry can have a material impact on the performance of the stock as well. In terms of the Zacks Industry Rank, Transportation - Shipping is currently in the bottom 27% of the 250 plus Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.

One other stock from the same industry, EuroDry (EDRY), is yet to report results for the quarter ended September 2024.

This company is expected to post quarterly loss of $0.70 per share in its upcoming report, which represents a year-over-year change of -191.7%. The consensus EPS estimate for the quarter has been revised 4% lower over the last 30 days to the current level.

EuroDry's revenues are expected to be $16.57 million, up 65.6% from the year-ago quarter.

Zacks Investment Research