When Will Enviva Inc. (NYSE:EVA) Become Profitable?
We feel now is a pretty good time to analyse Enviva Inc.'s (NYSE:EVA) business as it appears the company may be on the cusp of a considerable accomplishment. Enviva Inc. produces, processes, and sells utility-grade wood pellets. The US$260m market-cap company posted a loss in its most recent financial year of US$172m and a latest trailing-twelve-month loss of US$271m leading to an even wider gap between loss and breakeven. As path to profitability is the topic on Enviva's investors mind, we've decided to gauge market sentiment. In this article, we will touch on the expectations for the company's growth and when analysts expect it to become profitable.
See our latest analysis for Enviva
Consensus from 6 of the American Oil and Gas analysts is that Enviva is on the verge of breakeven. They anticipate the company to incur a final loss in 2024, before generating positive profits of US$37m in 2025. Therefore, the company is expected to breakeven roughly 2 years from today. How fast will the company have to grow each year in order to reach the breakeven point by 2025? Working backwards from analyst estimates, it turns out that they expect the company to grow 90% year-on-year, on average, which is rather optimistic! If this rate turns out to be too aggressive, the company may become profitable much later than analysts predict.
We're not going to go through company-specific developments for Enviva given that this is a high-level summary, but, take into account that typically 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 would like to bring into light with Enviva is its debt-to-equity ratio of over 2x. Generally, the rule of thumb is debt shouldn’t exceed 40% of your equity, which in this case, the company has significantly overshot. A higher level of debt requires more stringent capital management which increases the risk around investing in the loss-making company.
Next Steps:
This article is not intended to be a comprehensive analysis on Enviva, so if you are interested in understanding the company at a deeper level, take a look at Enviva's company page on Simply Wall St. We've also compiled a list of essential aspects you should look at:
Valuation: What is Enviva 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 Enviva 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 Enviva’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.
