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Source Energy Services Ltd.'s (TSE:SHLE) Path To Profitability

Source Energy Services Ltd. (TSE:SHLE) is possibly approaching a major achievement in its business, so we would like to shine some light on the company. Source Energy Services Ltd. produces, supplies, and distributes Northern White frac sand used primarily in oil and gas exploration and production in Western Canada and the United States. The CA$23m market-cap company’s loss lessened since it announced a CA$24m loss in the full financial year, compared to the latest trailing-twelve-month loss of CA$21m, as it approaches breakeven. The most pressing concern for investors is Source Energy Services' path to profitability – when will it breakeven? We've put together a brief outline of industry analyst expectations for the company, its year of breakeven and its implied growth rate.

Check out our latest analysis for Source Energy Services

Expectations from some of the Canadian Energy Services analysts is that Source Energy Services is on the verge of breakeven. They anticipate the company to incur a final loss in 2022, before generating positive profits of CA$4.0m in 2023. Therefore, the company is expected to breakeven just over a year from now. How fast will the company have to grow each year in order to reach the breakeven point by 2023? Working backwards from analyst estimates, it turns out that they expect the company to grow 148% 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

Given this is a high-level overview, we won’t go into details of Source Energy Services' upcoming projects, though, bear in mind that by and large energy companies, depending on the stage of operation and resource produced, have irregular periods of cash flow. This means that a high growth rate is not unusual, especially if the company is currently in an investment period.

One thing we would like to bring into light with Source Energy Services is its debt-to-equity ratio of over 2x. Typically, debt shouldn’t exceed 40% of your equity, and the company has considerably exceeded this. A higher level of debt requires more stringent capital management which increases the risk around investing in the loss-making company.

Next Steps:

This article is not intended to be a comprehensive analysis on Source Energy Services, so if you are interested in understanding the company at a deeper level, take a look at Source Energy Services' company page on Simply Wall St. We've also compiled a list of essential factors you should further research:

  1. Valuation: What is Source Energy Services 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 Source Energy Services 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 Source Energy Services’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.

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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