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Market Sentiment Around Loss-Making Renewi plc (LON:RWI)

Simply Wall St
·3 min read

We feel now is a pretty good time to analyse Renewi plc's (LON:RWI) business as it appears the company may be on the cusp of a considerable accomplishment. Renewi plc provides waste-to-product services in the United Kingdom, the Netherlands, Belgium, France, Germany, Hungary, Portugal, Canada, and Luxembourg. The UK£312m market-cap company posted a loss in its most recent financial year of €61m and a latest trailing-twelve-month loss of €39m shrinking the gap between loss and breakeven. The most pressing concern for investors is Renewi's path to profitability – when will it breakeven? Below we will provide a high-level summary of the industry analysts’ expectations for the company.

Check out our latest analysis for Renewi

According to the 3 industry analysts covering Renewi, the consensus is that breakeven is near. They expect the company to post a final loss in 2021, before turning a profit of €22m in 2022. The company is therefore projected to breakeven around 2 years from today. How fast will the company have to grow each year in order to reach the breakeven point by 2022? Working backwards from analyst estimates, it turns out that they expect the company to grow 57% year-on-year, on average, which is extremely buoyant. If this rate turns out to be too aggressive, the company may become profitable much later than analysts predict.

earnings-per-share-growth
earnings-per-share-growth

Underlying developments driving Renewi's growth isn’t the focus of this broad overview, but, keep in mind that generally 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 Renewi 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. Note that a higher debt obligation increases the risk in investing in the loss-making company.

Next Steps:

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

  1. Valuation: What is Renewi 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 Renewi 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 Renewi’s board and the CEO’s background.

  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.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.