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Market Sentiment Around Loss-Making GDS Holdings Limited (NASDAQ:GDS)

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GDS Holdings Limited’s (NASDAQ:GDS): GDS Holdings Limited, together with its subsidiaries, designs, builds, and operates data centers in the People’s Republic of China. With the latest financial year loss of -CN¥326.9m and a trailing-twelve month of -CN¥423.9m, the US$4.0b market-cap amplifies its loss by moving further away from its breakeven target. Many investors are wondering the rate at which GDS will turn a profit, with the big question being “when will the company breakeven?” Below I will provide a high-level summary of the industry analysts’ expectations for GDS.

View our latest analysis for GDS Holdings

GDS is bordering on breakeven, according to the 9 IT analysts. They anticipate the company to incur a final loss in 2019, before generating positive profits of CN¥120m in 2020. Therefore, GDS is expected to breakeven roughly 2 years from today. What rate will GDS 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 72%, which signals high confidence from analysts. If this rate turns out to be too aggressive, GDS may become profitable much later than analysts predict.

NasdaqGM:GDS Past Future Earnings December 6th 18
NasdaqGM:GDS Past Future Earnings December 6th 18

I’m not going to go through company-specific developments for GDS given that this is a high-level summary, however, bear in mind that typically 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. GDS currently has a debt-to-equity ratio of over 2x. Typically, debt shouldn’t exceed 40% of your equity, which in GDS’s case, it has significantly overshot. A higher level of debt requires more stringent capital management which increases the risk around investing in the loss-making company.

Next Steps:

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

  1. Historical Track Record: What has GDS’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.

  2. Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on GDS 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.