What You Need To Know About The Ascletis Pharma Inc. (HKG:1672) Analyst Downgrade Today

The analysts covering Ascletis Pharma Inc. (HKG:1672) delivered a dose of negativity to shareholders today, by making a substantial revision to their statutory forecasts for this year. There was a fairly draconian cut to their revenue estimates, perhaps an implicit admission that previous forecasts were much too optimistic. Shares are up 9.1% to HK$2.89 in the past week. It will be interesting to see if this downgrade motivates investors to start selling their holdings.

After this downgrade, Ascletis Pharma's dual analysts are now forecasting revenues of CN¥85m in 2022. This would be an okay 8.0% improvement in sales compared to the last 12 months. Losses are supposed to balloon 36% to CN¥0.22 per share. However, before this estimates update, the consensus had been expecting revenues of CN¥104m and CN¥0.21 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.

View our latest analysis for Ascletis Pharma

There was no major change to the consensus price target of CN¥2.00, signalling that the business is performing roughly in line with expectations, despite lower earnings per share forecasts. 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. The most optimistic Ascletis Pharma analyst has a price target of CN¥2.24 per share, while the most pessimistic values it at CN¥2.05. With such a narrow range of valuations, analysts apparently share similar views on what they think the business is worth.

Of course, another way to look at these forecasts is to place them into context against the industry itself. For example, we noticed that Ascletis Pharma's rate of growth is expected to accelerate meaningfully, with revenues forecast to exhibit 17% growth to the end of 2022 on an annualised basis. That is well above its historical decline of 36% a year over the past three years. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to see their revenue grow 42% per year. So although Ascletis Pharma's revenue growth is expected to improve, it is still expected to grow slower than the 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 Ascletis Pharma. Unfortunately analysts also downgraded their revenue estimates, and industry data suggests that Ascletis Pharma's revenues are expected to grow slower than the wider market. Often, one downgrade can set off a daisy-chain of cuts, especially if an industry is in decline. So we wouldn't be surprised if the market became a lot more cautious on Ascletis Pharma after today.

Even so, the longer term trajectory of the business is much more important for the value creation of shareholders. We have analyst estimates for Ascletis Pharma going out as far as 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.