The analysts covering InnoCare Pharma Limited (HKG:9969) delivered a dose of negativity to shareholders today, by making a substantial revision to their statutory forecasts for this year. Both revenue and earnings per share (EPS) forecasts went under the knife, suggesting analysts have soured majorly on the business.

Following the downgrade, the consensus from nine analysts covering InnoCare Pharma is for revenues of CN¥538m in 2022, implying a concerning 55% decline in sales compared to the last 12 months. Per-share losses are expected to explode, reaching CN¥0.46 per share. However, before this estimates update, the consensus had been expecting revenues of CN¥599m and CN¥0.41 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.

See our latest analysis for InnoCare Pharma

The consensus price target was broadly unchanged at CN¥18.15, perhaps implicitly signalling that the weaker earnings outlook is not expected to have a long-term impact on the valuation. That's not the only conclusion we can draw from this data however, as some investors also like to consider the spread in estimates when evaluating analyst price targets. Currently, the most bullish analyst values InnoCare Pharma at CN¥31.13 per share, while the most bearish prices it at CN¥15.96. This is a fairly broad spread of estimates, suggesting that the analysts are forecasting a wide range of possible outcomes for the business.

One way to get more context on these forecasts is to look at how they compare to both past performance, and how other companies in the same industry are performing. We would highlight that sales are expected to reverse, with a forecast 55% annualised revenue decline to the end of 2022. That is a notable change from historical growth of 132% over the last three years. By contrast, our data suggests that other companies (with analyst coverage) in the same industry are forecast to see their revenue grow 39% annually for the foreseeable future. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - InnoCare Pharma is expected to lag the wider industry.

The Bottom Line

The most important thing to take away is that analysts increased their loss per share estimates for this year. Regrettably, they also downgraded their revenue estimates, and the latest forecasts imply the business will grow sales slower 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 this year, we wouldn't be surprised if investors were a bit wary of InnoCare Pharma.

Even so, the longer term trajectory of the business is much more important for the value creation of shareholders. We have estimates - from multiple InnoCare Pharma analysts - going out to 2024, and you can see them free on our platform here.

Of course, seeing company management invest large sums of money in a stock can be just as useful as knowing whether analysts are downgrading their estimates. So you may also wish to search this free list of stocks that insiders are buying.

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