Market forces rained on the parade of MEI Pharma, Inc. (NASDAQ:MEIP) shareholders today, when the analysts downgraded their forecasts for this year. Both revenue and earnings per share (EPS) forecasts went under the knife, suggesting the analysts have soured majorly on the business. Surprisingly the share price has been buoyant, rising 23% to US$3.37 in the past 7 days. Whether the downgrade will have a negative impact on demand for shares is yet to be seen.

After this downgrade, MEI Pharma's eight analysts are now forecasting revenues of US$38m in 2022. This would be a decent 8.5% improvement in sales compared to the last 12 months. Per-share losses are expected to explode, reaching US$0.65 per share. Yet before this consensus update, the analysts had been forecasting revenues of US$55m and losses of US$0.55 per share in 2022. 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.

View our latest analysis for MEI Pharma

There was no major change to the consensus price target of US$10.89, signalling that the business is performing roughly in line with expectations, despite lower earnings per share forecasts. The consensus price target is just an average of individual analyst targets, so - it could be handy to see how wide the range of underlying estimates is. The most optimistic MEI Pharma analyst has a price target of US$20.00 per share, while the most pessimistic values it at US$7.00. 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.

Of course, another way to look at these forecasts is to place them into context against the industry itself. It's pretty clear that there is an expectation that MEI Pharma's revenue growth will slow down substantially, with revenues to the end of 2022 expected to display 12% growth on an annualised basis. This is compared to a historical growth rate of 29% over the past five years. Compare this against other companies (with analyst forecasts) in the industry, which are in aggregate expected to see revenue growth of 15% annually. So it's pretty clear that, while revenue growth is expected to slow down, the wider industry is also expected to grow faster than MEI Pharma.

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 MEI Pharma. Unfortunately analysts also downgraded their revenue estimates, and industry data suggests that MEI Pharma's revenues are expected to grow slower than the wider market. We're also surprised to see that the price target went unchanged. Still, deteriorating business conditions (assuming accurate forecasts!) can be a leading indicator for the stock price, so we wouldn't blame investors for being more cautious on MEI Pharma after the downgrade.

Still, the long-term prospects of the business are much more relevant than next year's earnings. At Simply Wall St, we have a full range of analyst estimates for MEI Pharma going out to 2024, 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 that insiders are buying.

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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.