Market forces rained on the parade of Cyclopharm Limited (ASX:CYC) shareholders today, when the covering analyst downgraded their forecasts for this year. Both revenue and earnings per share (EPS) estimates were cut sharply as the analyst factored in the latest outlook for the business, concluding that they were too optimistic previously.

Following the downgrade, the consensus from solo analyst covering Cyclopharm is for revenues of AU$17m in 2021, implying a perceptible 6.7% decline in sales compared to the last 12 months. Losses are expected to increase substantially, hitting AU$0.088 per share. However, before this estimates update, the consensus had been expecting revenues of AU$19m and AU$0.071 per share in losses. So there's been quite a change-up of views after the recent consensus updates, with the analyst making a serious cut to their revenue forecasts while also expecting losses per share to increase.

Check out our latest analysis for Cyclopharm  earnings-and-revenue-growth

The consensus price target fell 51% to US$1.44, implicitly signalling that lower earnings per share are a leading indicator for Cyclopharm's valuation.

Of course, another way to look at these forecasts is to place them into context against the industry itself. These estimates imply that sales are expected to slow, with a forecast annualised revenue decline of 6.7% by the end of 2021. This indicates a significant reduction from annual growth of 4.9% over the last five years. By contrast, our data suggests that other companies (with analyst coverage) in the same industry are forecast to see their revenue grow 14% annually for the foreseeable future. It's pretty clear that Cyclopharm's revenues are expected to perform substantially worse 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 Cyclopharm. Unfortunately the analyst also downgraded their revenue estimates, and industry data suggests that Cyclopharm's revenues are expected to grow 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 Cyclopharm.



That said, the analyst might have good reason to be negative on Cyclopharm, given a short cash runway. For more information, you can click here to discover this and the 3 other flags we've identified.

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.

This article by Simply Wall St is general in nature. 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.

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