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Kosmos Energy Ltd.'s (NYSE:KOS): Kosmos Energy Ltd., a deepwater independent oil and gas exploration and production company, focuses along the Atlantic Margins. The company’s loss has recently broadened since it announced a US$55.8m loss in the full financial year, compared to the latest trailing-twelve-month loss of US$185.6m, moving it further away from breakeven. As path to profitability is the topic on KOS’s investors mind, I’ve decided to gauge market sentiment. Below I will provide a high-level summary of the industry analysts’ expectations for KOS.
KOS is bordering on breakeven, according to the 8 Oil and Gas analysts. They expect the company to post a final loss in 2022, before turning a profit of US$69m in 2023. Therefore, KOS is expected to breakeven roughly 3 years from now. How fast will KOS have to grow each year in order to reach the breakeven point by 2023? Working backwards from analyst estimates, it turns out that they expect the company to grow 86% year-on-year, on average, which is extremely buoyant. Should the business grow at a slower rate, it will become profitable at a later date than expected.
I’m not going to go through company-specific developments for KOS given that this is a high-level summary, however, take into account that by and large an energy business has lumpy cash flows which are contingent on the natural resource 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 I would like to bring into light with KOS is its debt-to-equity ratio of over 2x. Generally, the rule of thumb is debt shouldn’t exceed 40% of your equity, and KOS 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.
This article is not intended to be a comprehensive analysis on KOS, so if you are interested in understanding the company at a deeper level, take a look at KOS’s company page on Simply Wall St. I’ve also put together a list of important factors you should further research:
Valuation: What is KOS 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 KOS 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 Kosmos Energy’s board and the CEO’s back ground.
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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