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Analysts Are More Bearish On Motorsport Games Inc. (NASDAQ:MSGM) Than They Used To Be

Market forces rained on the parade of Motorsport Games Inc. (NASDAQ:MSGM) shareholders today, when the analysts downgraded their forecasts for this year. Both revenue and earnings per share (EPS) estimates were cut sharply as analysts factored in the latest outlook for the business, concluding that they were too optimistic previously. Surprisingly the share price has been buoyant, rising 11% to US$0.63 in the past 7 days. Whether the downgrade will have a negative impact on demand for shares is yet to be seen.

Following the latest downgrade, the current consensus, from the four analysts covering Motorsport Games, is for revenues of US$14m in 2022, which would reflect a chunky 12% reduction in Motorsport Games' sales over the past 12 months. Losses are forecast to narrow 8.5% to US$2.83 per share. 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.

See our latest analysis for Motorsport Games

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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. 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. The most optimistic Motorsport Games analyst has a price target of US$4.00 per share, while the most pessimistic values it at US$0.60. We would probably assign less value to the 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 possible to derive much meaning from the consensus price target, which is after all just an average of this wide range of estimates.

Taking a look at the bigger picture now, one of the ways we can understand these forecasts is to see how they compare to both past performance and industry growth estimates. 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. Given the scope of the downgrades, it would not be a surprise to see the market become more wary of the business.

That said, the analysts might have good reason to be negative on Motorsport Games, given a short cash runway. For more information, you can click here to discover this and the 1 other risk 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.

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.

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