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With the business potentially at an important milestone, we thought we'd take a closer look at 88 Energy Limited's (ASX:88E) future prospects. 88 Energy Limited engages in the exploration of oil and gas properties in the United States. The AU$604m market-cap company posted a loss in its most recent financial year of AU$22m and a latest trailing-twelve-month loss of AU$18m shrinking the gap between loss and breakeven. Many investors are wondering about the rate at which 88 Energy will turn a profit, with the big question being “when will the company breakeven?” We've put together a brief outline of industry analyst expectations for the company, its year of breakeven and its implied growth rate.
According to some industry analysts covering 88 Energy, breakeven is near. They expect the company to post a final loss in 2021, before turning a profit of AU$2.9m in 2022. So, the company is predicted to breakeven approximately 12 months from now or less. At what rate will the company have to grow in order to realise the consensus estimates forecasting breakeven in under 12 months? Using a line of best fit, we calculated an average annual growth rate of 161%, which is extremely buoyant. If this rate turns out to be too aggressive, the company may become profitable much later than analysts predict.
Underlying developments driving 88 Energy's growth isn’t the focus of this broad overview, however, take into account that generally energy companies, depending on the stage of operation and resource produced, have irregular periods of cash flow. This means, large upcoming growth rates are not abnormal as the company is beginning to reap the benefits of earlier investments.
One thing we’d like to point out is that 88 Energy has no debt on its balance sheet, which is quite unusual for a cash-burning oil and gas company, which typically has high debt relative to its equity. This means that the company has been operating purely on its equity investment and has no debt burden. This aspect reduces the risk around investing in the loss-making company.
There are key fundamentals of 88 Energy which are not covered in this article, but we must stress again that this is merely a basic overview. For a more comprehensive look at 88 Energy, take a look at 88 Energy's company page on Simply Wall St. We've also compiled a list of important aspects you should look at:
Historical Track Record: What has 88 Energy's performance been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on 88 Energy's board and the CEO’s background.
Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
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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.