Need To Know: Analysts Just Made A Substantial Cut To Their Venus Medtech (Hangzhou) Inc. (HKG:2500) Estimates

The latest analyst coverage could presage a bad day for Venus Medtech (Hangzhou) Inc. (HKG:2500), with the analysts making across-the-board cuts to their statutory estimates that might leave shareholders a little shell-shocked. Both revenue and earnings per share (EPS) forecasts went under the knife, suggesting the analysts have soured majorly on the business.

Following the downgrade, the latest consensus from Venus Medtech (Hangzhou)'s seven analysts is for revenues of CN¥575m in 2022, which would reflect a sizeable 49% improvement in sales compared to the last 12 months. The loss per share is anticipated to greatly reduce in the near future, narrowing 30% to CN¥0.73. Yet before this consensus update, the analysts had been forecasting revenues of CN¥644m and losses of CN¥0.63 per share in 2022. 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 Venus Medtech (Hangzhou)

The consensus price target was broadly unchanged at CN¥20.64, perhaps implicitly signalling that the weaker earnings outlook is not expected to have a long-term impact on the valuation. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company's valuation. Currently, the most bullish analyst values Venus Medtech (Hangzhou) at CN¥33.04 per share, while the most bearish prices it at CN¥18.02. This is a fairly broad spread of estimates, suggesting that the analysts are forecasting a wide range of possible outcomes for the business.

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. One thing stands out from these estimates, which is that Venus Medtech (Hangzhou) is forecast to grow faster in the future than it has in the past, with revenues expected to display 49% annualised growth until the end of 2022. If achieved, this would be a much better result than the 6.5% annual decline over the past year. Compare this against analyst estimates for the broader industry, which suggest that (in aggregate) industry revenues are expected to grow 44% annually. So while Venus Medtech (Hangzhou)'s revenues are expected to improve, it seems that it is expected to grow at about the same rate as the overall industry.

The Bottom Line

The most important thing to take away is that analysts increased their loss per share estimates for this year. Lamentably, they also downgraded their sales forecasts, but the business is still expected to grow at roughly the same rate as the market itself. 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 Venus Medtech (Hangzhou).

Even so, the longer term trajectory of the business is much more important for the value creation of shareholders. We have estimates - from multiple Venus Medtech (Hangzhou) analysts - going out to 2024, 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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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.