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Loss-Making Bitauto Holdings Limited (NYSE:BITA) Expected To Breakeven

Bitauto Holdings Limited’s (NYSE:BITA): Bitauto Holdings Limited, through its subsidiaries, provides Internet content and marketing services, and transaction services for the automobile industry in the People’s Republic of China. The US$1.3b market-cap posted a loss in its most recent financial year of -CN¥1.6b and a latest trailing-twelve-month loss of -CN¥1.5b shrinking the gap between loss and breakeven. Many investors are wondering the rate at which BITA will turn a profit, with the big question being “when will the company breakeven?” I’ve put together a brief outline of industry analyst expectations for BITA, its year of breakeven and its implied growth rate.

See our latest analysis for Bitauto Holdings

According to the 9 industry analysts covering BITA, the consensus is breakeven is near. They expect the company to post a final loss in 2019, before turning a profit of CN¥796m in 2020. BITA is therefore projected to breakeven around 2 years from now. What rate will BITA have to grow year-on-year in order to breakeven on this date? Using a line of best fit, I calculated an average annual growth rate of 100%, which is rather optimistic! If this rate turns out to be too aggressive, BITA may become profitable much later than analysts predict.

NYSE:BITA Past Future Earnings November 28th 18
NYSE:BITA Past Future Earnings November 28th 18

I’m not going to go through company-specific developments for BITA given that this is a high-level summary, though, keep in mind that by and large a high forecast growth rate is not unusual for a company that is currently undergoing an investment period.

Before I wrap up, there’s one issue worth mentioning. BITA currently has a debt-to-equity ratio of 145%. Generally, the rule of thumb is debt shouldn’t exceed 40% of your equity, and BITA 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.

Next Steps:

This article is not intended to be a comprehensive analysis on BITA, so if you are interested in understanding the company at a deeper level, take a look at BITA’s company page on Simply Wall St. I’ve also put together a list of important aspects you should look at:

  1. Valuation: What is BITA 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 BITA is currently mispriced by the market.

  2. Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on Bitauto Holdings’s board and the CEO’s back ground.

  3. 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.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.