With the business potentially at an important milestone, we thought we'd take a closer look at Petra Diamonds Limited's (LON:PDL) future prospects. Petra Diamonds Limited engages in the mining, exploration, processing, sorting, and sale of rough diamonds in South Africa and Tanzania. The UK£15m market-cap company posted a loss in its most recent financial year of US$190m and a latest trailing-twelve-month loss of US$127m shrinking the gap between loss and breakeven. The most pressing concern for investors is Petra Diamonds' path to profitability – when will it breakeven? Below we will provide a high-level summary of the industry analysts’ expectations for the company.
According to the 6 industry analysts covering Petra Diamonds, the consensus is that breakeven is near. They anticipate the company to incur a final loss in 2022, before generating positive profits of US$33m in 2023. Therefore, the company is expected to breakeven roughly 2 years from now. What rate will the company have to grow year-on-year in order to breakeven on this date? Using a line of best fit, we calculated an average annual growth rate of 77%, which signals high confidence from analysts. Should the business grow at a slower rate, it will become profitable at a later date than expected.
Underlying developments driving Petra Diamonds' growth isn’t the focus of this broad overview, but, take into account that generally a metal and mining business has lumpy cash flows which are contingent on the natural resource mined and stage at which the company is operating. This means that a high growth rate is not unusual, especially if the company is currently in an investment period.
One thing we would like to bring into light with Petra Diamonds is its debt-to-equity ratio of over 2x. Typically, debt shouldn’t exceed 40% of your equity, and the company has considerably exceeded this. A higher level of debt requires more stringent capital management which increases the risk in investing in the loss-making company.
There are key fundamentals of Petra Diamonds 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 Petra Diamonds, take a look at Petra Diamonds' company page on Simply Wall St. We've also compiled a list of key aspects you should look at:
Valuation: What is Petra Diamonds worth today? Has the future growth potential already been factored into the price? The intrinsic value infographic in our free research report helps visualize whether Petra Diamonds is currently mispriced by the market.
Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on Petra Diamonds’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.
This article by Simply Wall St is general in nature. 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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