Loss-Making Armour Energy Limited (ASX:AJQ) Expected To Breakeven In The Medium-Term
With the business potentially at an important milestone, we thought we'd take a closer look at Armour Energy Limited's (ASX:AJQ) future prospects. Armour Energy Limited, together with its subsidiaries, focuses on the discovery, development, and production of natural oil and gas, and associated liquid resources in Australia. The AU$15m market-cap company posted a loss in its most recent financial year of AU$11m and a latest trailing-twelve-month loss of AU$13m leading to an even wider gap between loss and breakeven. As path to profitability is the topic on Armour Energy's investors mind, we've decided to gauge market sentiment. Below we will provide a high-level summary of the industry analysts’ expectations for the company.
Check out our latest analysis for Armour Energy
According to some industry analysts covering Armour Energy, breakeven is near. They anticipate the company to incur a final loss in 2023, before generating positive profits of AU$1.1m in 2024. The company is therefore projected to breakeven just over a year 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 100%, which is rather optimistic! If this rate turns out to be too aggressive, the company may become profitable much later than analysts predict.
Underlying developments driving Armour Energy's growth isn’t the focus of this broad overview, however, keep in mind that typically an energy business has lumpy cash flows which are contingent on the natural resource and stage at which the company is operating. So, a high growth rate is not out of the ordinary, particularly when a company is in a period of investment.
One thing we would like to bring into light with Armour Energy is its relatively high level of debt. Generally, the rule of thumb is debt shouldn’t exceed 40% of your equity, which in Armour Energy's case is 83%. Note that a higher debt obligation increases the risk around investing in the loss-making company.
Next Steps:
This article is not intended to be a comprehensive analysis on Armour Energy, so if you are interested in understanding the company at a deeper level, take a look at Armour Energy's company page on Simply Wall St. We've also compiled a list of essential aspects you should further research:
Historical Track Record: What has Armour 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 Armour 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
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