Need To Know: Analysts Just Made A Substantial Cut To Their Motorsport Games Inc. (NASDAQ:MSGM) Estimates

Today is shaping up negative for Motorsport Games Inc. (NASDAQ:MSGM) shareholders, with the analysts delivering a substantial negative revision to this year's forecasts. Both revenue and earnings per share (EPS) forecasts went under the knife, suggesting analysts have soured majorly on the business. Bidders are definitely seeing a different story, with the stock price of US$0.63 reflecting a 11% rise in the past week. It will be interesting to see if the downgrade has an impact on buying demand for the company's shares.

Following the latest downgrade, the four analysts covering Motorsport Games provided consensus estimates of US$14m revenue in 2022, which would reflect a not inconsiderable 12% decline on its sales over the past 12 months. The loss per share is expected to ameliorate slightly, reducing to US$2.83. However, before this estimates update, the consensus had been expecting revenues of US$16m and US$2.22 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.

Check out our latest analysis for Motorsport Games

The consensus price target fell 5.3% to US$2.37, 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 Motorsport Games, with the most bullish analyst valuing it at US$4.00 and the most bearish at US$0.60 per share. With such a wide range in price targets, the analysts are almost certainly betting on widely diverse outcomes for the underlying business. With this in mind, we wouldn't rely too heavily on the consensus price target, as it is just an average and analysts clearly have some deeply divergent views on 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. Over the past year, revenues have declined around 5.7% annually. Worse, forecasts are essentially predicting the decline to accelerate, with the estimate for an annualised 22% decline in revenue until the end of 2022. Compare this against analyst estimates for companies in the broader industry, which suggest that revenues (in aggregate) are expected to grow 10% annually. So while a broad number of companies are forecast to grow, unfortunately Motorsport Games is expected to see its sales affected worse than other companies in the 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. With a serious cut to this year's expectations and a falling price target, we wouldn't be surprised if investors were becoming wary of Motorsport Games.

As you can see, the analysts clearly aren't bullish, and there might be good reason for that. We've identified some potential issues with Motorsport Games' financials, such as a short cash runway. For more information, you can click here to discover this and the 1 other flag we've identified.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.