The Neptune Wellness Solutions Inc. (TSE:NEPT) Analysts Have Been Trimming Their Sales Forecasts

The latest analyst coverage could presage a bad day for Neptune Wellness Solutions Inc. (TSE:NEPT), with the analysts making across-the-board cuts to their statutory estimates that might leave shareholders a little shell-shocked. Revenue estimates were cut sharply as analysts signalled a weaker outlook - perhaps a sign that investors should temper their expectations as well. Bidders are definitely seeing a different story, with the stock price of CA$3.32 reflecting a 30% rise in the past week. Whether the downgrade will have a negative impact on demand for shares is yet to be seen.

Following the downgrade, the current consensus from Neptune Wellness Solutions' five analysts is for revenues of CA$95m in 2021 which - if met - would reflect a substantial 61% increase on its sales over the past 12 months. Losses are predicted to fall substantially, shrinking 22% to CA$0.52. Yet before this consensus update, the analysts had been forecasting revenues of CA$108m and losses of CA$0.49 per share in 2021. 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 Neptune Wellness Solutions

The consensus price target fell 9.1% to CA$4.50, with the analysts clearly concerned about the company following the weaker revenue and earnings outlook. There's another way to think about price targets though, and that's to look at the range of price targets put forward by analysts, because a wide range of estimates could suggest a diverse view on possible outcomes for the business. There are some variant perceptions on Neptune Wellness Solutions, with the most bullish analyst valuing it at CA$6.00 and the most bearish at CA$2.75 per share. Note the wide gap in analyst price targets? This implies to us that there is a fairly broad range of possible scenarios for the underlying business.

These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the Neptune Wellness Solutions' past performance and to peers in the same industry. The analysts are definitely expecting Neptune Wellness Solutions' growth to accelerate, with the forecast 61% growth ranking favourably alongside historical growth of 5.6% per annum over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to grow their revenue at 14% per year. It seems obvious that, while the growth outlook is brighter than the recent past, the analysts also expect Neptune Wellness Solutions to grow faster than the wider industry.

The Bottom Line

The most important thing to note from this downgrade is that the consensus increased its forecast losses this year, suggesting all may not be well at Neptune Wellness Solutions. Unfortunately, analysts also downgraded their revenue estimates, although our data indicates revenues are expected to perform better than the wider market. The consensus price target fell measurably, with analysts seemingly not reassured by recent business developments, leading to a lower estimate of Neptune Wellness Solutions' future valuation. Given the stark change in sentiment, we'd understand if investors became more cautious on Neptune Wellness Solutions after today.

Still, the long-term prospects of the business are much more relevant than next year's earnings. We have estimates - from multiple Neptune Wellness Solutions analysts - going out to 2023, 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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