One thing we could say about the analysts on MGI Tech Co., Ltd. (SHSE:688114) - they aren't optimistic, having just made a major negative revision to their near-term (statutory) forecasts for the organization. Revenue and earnings per share (EPS) forecasts were both revised downwards, with the analysts seeing grey clouds on the horizon.

Following the downgrade, the latest consensus from MGI Tech's seven analysts is for revenues of CN¥2.7b in 2024, which would reflect a modest 2.4% improvement in sales compared to the last 12 months. The loss per share is anticipated to greatly reduce in the near future, narrowing 38% to CN¥1.22. However, before this estimates update, the consensus had been expecting revenues of CN¥3.5b and CN¥0.33 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.

The consensus price target was broadly unchanged at CN¥75.48, perhaps implicitly signalling that the weaker earnings outlook is not expected to have a long-term impact on the valuation.

Looking at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up against both past performance and industry growth estimates. For example, we noticed that MGI Tech's rate of growth is expected to accelerate meaningfully, with revenues forecast to exhibit 4.9% growth to the end of 2024 on an annualised basis. That is well above its historical decline of 16% a year over the past three years. Compare this against analyst estimates for the broader industry, which suggest that (in aggregate) industry revenues are expected to grow 13% annually for the foreseeable future. Although MGI Tech's revenues are expected to improve, it seems that the analysts are still bearish on the business, forecasting it to grow slower than the broader 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 MGI Tech. Unfortunately analysts also downgraded their revenue estimates, and industry data suggests that MGI Tech's revenues are expected to grow slower than the wider market. The lack of change in the price target is puzzling in light of the downgrade but, with a serious decline expected this year, we wouldn't be surprised if investors were a bit wary of MGI Tech.

Even so, the longer term trajectory of the business is much more important for the value creation of shareholders. We have estimates - from multiple MGI Tech analysts - going out to 2026, 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 backed by insiders.

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