When Can We Expect A Profit From Avesoro Resources Inc. (TSE:ASO)?

Avesoro Resources Inc.’s (TSE:ASO): Avesoro Resources Inc. explores for, develops, and operates gold assets in West Africa. The CA$106m market-cap posted a loss in its most recent financial year of -US$29.9m and a latest trailing-twelve-month loss of -US$49.8m leading to an even wider gap between loss and breakeven. As path to profitability is the topic on ASO’s investors mind, I’ve decided to gauge market sentiment. I’ve put together a brief outline of industry analyst expectations for ASO, its year of breakeven and its implied growth rate.

See our latest analysis for Avesoro Resources

According to the 4 industry analysts covering ASO, the consensus is breakeven is near. They anticipate the company to incur a final loss in 2019, before generating positive profits of US$3.3m in 2020. Therefore, ASO is expected to breakeven roughly a couple of months from now! How fast will ASO have to grow each year in order to reach the breakeven point by 2020? Working backwards from analyst estimates, it turns out that they expect the company to grow 86% year-on-year, on average, which is rather optimistic! If this rate turns out to be too aggressive, ASO may become profitable much later than analysts predict.

TSX:ASO Past and Future Earnings, July 31st 2019
TSX:ASO Past and Future Earnings, July 31st 2019

Underlying developments driving ASO’s growth isn’t the focus of this broad overview, but, take into account that generally a metal and mining business has lumpy cash flows which are contingent on the natural resource mined and stage at which the company is operating. This means, large upcoming growth rates are not abnormal as the company is beginning to reap the benefits of earlier investments.

One thing I would like to bring into light with ASO is its debt-to-equity ratio of 155%. Generally, the rule of thumb is debt shouldn’t exceed 40% of your equity, and ASO has considerably exceeded this. Note that a higher debt obligation increases the risk in investing in the loss-making company.

Next Steps:

There are key fundamentals of ASO which are not covered in this article, but I must stress again that this is merely a basic overview. For a more comprehensive look at ASO, take a look at ASO’s company page on Simply Wall St. I’ve also put together a list of key factors you should further research:

  1. Valuation: What is ASO 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 ASO 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 Avesoro Resources’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.