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Loss-Making Karoon Energy Ltd (ASX:KAR) Expected To Breakeven

Simply Wall St

Karoon Energy Ltd's (ASX:KAR): Karoon Energy Ltd operates as an oil and gas exploration company in Australia, Brazil, and Peru. The AU$250m market-cap company announced a latest loss of -AU$28.4m on 30 June 2019 for its most recent financial year result. As path to profitability is the topic on KAR’s investors mind, I’ve decided to gauge market sentiment. Below I will provide a high-level summary of the industry analysts’ expectations for KAR.

View our latest analysis for Karoon Energy

Consensus from the 2 Oil and Gas analysts is KAR is on the verge of breakeven. They anticipate the company to incur a final loss in 2020, before generating positive profits of AU$85m in 2021. Therefore, KAR is expected to breakeven roughly 2 years from now. In order to meet this breakeven date, I calculated the rate at which KAR must grow year-on-year. It turns out an average annual growth rate of 105% is expected, which is rather optimistic! Should the business grow at a slower rate, it will become profitable at a later date than expected.

ASX:KAR Past and Future Earnings, October 28th 2019

Given this is a high-level overview, I won’t go into details of KAR’s upcoming projects, though, bear in mind that typically oil and gas 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 I’d like to point out is that KAR has managed its capital prudently, with debt making up -0.004% of equity. This means that KAR has predominantly funded its operations from equity capital,and its low debt obligation reduces the risk around investing in the loss-making company.

Next Steps:

There are too many aspects of KAR to cover in one brief article, but the key fundamentals for the company can all be found in one place – KAR’s company page on Simply Wall St. I’ve also put together a list of relevant factors you should further examine:

  1. Valuation: What is KAR 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 KAR 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 Karoon Energy’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.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.