Valeo Pharma Inc. (TSE:VPH) Just Reported And Analysts Have Been Cutting Their Estimates

It's been a pretty great week for Valeo Pharma Inc. (TSE:VPH) shareholders, with its shares surging 12% to CA$0.56 in the week since its latest second-quarter results. Statutory results overall were mixed, with revenues coming in 27% lower than the analysts predicted. What's really surprising is that losses of CA$0.06 per share were pretty much in line with forecasts, despite the revenue miss. Following the result, the analysts have updated their earnings model, and it would be good to know whether they think there's been a strong change in the company's prospects, or if it's business as usual. With this in mind, we've gathered the latest statutory forecasts to see what the analysts are expecting for next year.

See our latest analysis for Valeo Pharma

After the latest results, the three analysts covering Valeo Pharma are now predicting revenues of CA$28.1m in 2022. If met, this would reflect a huge 55% improvement in sales compared to the last 12 months. Losses are expected to be contained, narrowing 13% from last year to CA$0.23. Before this earnings announcement, the analysts had been modelling revenues of CA$36.0m and losses of CA$0.17 per share in 2022. There's been a definite change in sentiment in this update, with the analysts administering a notable cut to next year's revenue estimates, while at the same time increasing their loss per share forecasts.

The consensus price target fell 22% to CA$1.33, 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 Valeo Pharma, with the most bullish analyst valuing it at CA$2.30 and the most bearish at CA$0.70 per share. We would probably assign less value to the analyst forecasts in this situation, because such a wide range of estimates could imply that the future of this business is difficult to value accurately. As a result it might not be a great idea to make decisions based on the consensus price target, which is after all just an average of this wide range of estimates.

One way to get more context on these forecasts is to look at how they compare to both past performance, and how other companies in the same industry are performing. It's clear from the latest estimates that Valeo Pharma's rate of growth is expected to accelerate meaningfully, with the forecast 141% annualised revenue growth to the end of 2022 noticeably faster than its historical growth of 37% p.a. over the past three years. Compare this with other companies in the same industry, which are forecast to grow their revenue 9.1% annually. Factoring in the forecast acceleration in revenue, it's pretty clear that Valeo Pharma is expected to grow much faster than its industry.

The Bottom Line

The most important thing to note is the forecast of increased losses next year, suggesting all may not be well at Valeo Pharma. Regrettably, they also downgraded their revenue estimates, but the latest forecasts still imply the business will grow faster than the wider industry. The consensus price target fell measurably, with the analysts seemingly not reassured by the latest results, leading to a lower estimate of Valeo Pharma's future valuation.

Following on from that line of thought, we think that the long-term prospects of the business are much more relevant than next year's earnings. We have forecasts for Valeo Pharma going out to 2024, and you can see them free on our platform here.

We don't want to rain on the parade too much, but we did also find 4 warning signs for Valeo Pharma (2 are potentially serious!) that you need to be mindful of.

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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.