Time To Worry? Analysts Are Downgrading Their Next Games Oyj (HEL:NXTGMS) Outlook

Today is shaping up negative for Next Games Oyj (HEL:NXTGMS) shareholders, with the analysts delivering a substantial negative revision to this year's forecasts. Revenue and earnings per share (EPS) forecasts were both revised downwards, with the analysts seeing grey clouds on the horizon.

Following the downgrade, the current consensus from Next Games Oyj's four analysts is for revenues of €44m in 2021 which - if met - would reflect a huge 60% increase on its sales over the past 12 months. Losses are forecast to narrow 9.5% to €0.13 per share. Yet prior to the latest estimates, the analysts had been forecasting revenues of €53m and losses of €0.041 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.

View our latest analysis for Next Games Oyj

The consensus price target lifted 11% to €1.70, clearly signalling that the weaker revenue and EPS outlook are not expected to weigh on the stock over the longer term. 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. Currently, the most bullish analyst values Next Games Oyj at €1.80 per share, while the most bearish prices it at €1.60. This is a very narrow spread of estimates, implying either that Next Games Oyj is an easy company to value, or - more likely - the analysts are relying heavily on some key assumptions.

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. The analysts are definitely expecting Next Games Oyj's growth to accelerate, with the forecast 60% annualised growth to the end of 2021 ranking favourably alongside historical growth of 5.2% per annum over the past five years. Compare this with other companies in the same industry, which are forecast to grow their revenue 12% annually. It seems obvious that, while the growth outlook is brighter than the recent past, the analysts also expect Next Games Oyj 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 Next Games Oyj. While analysts did downgrade their revenue estimates, these forecasts still imply revenues will perform better than the wider market. The rising price target is a puzzle, but still - with a serious cut to this year's outlook, we wouldn't be surprised if investors were a bit wary of Next Games Oyj.

With that said, the long-term trajectory of the company's earnings is a lot more important than next year. We have estimates - from multiple Next Games Oyj analysts - going out to 2025, 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.

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