Zai Lab Limited’s (NASDAQ:ZLAB): Zai Lab Limited, a biopharmaceutical company, engages in discovering or licensing, developing, and commercializing proprietary therapeutics that address medical needs in the fields of oncology, infectious, and autoimmune diseases in China and internationally. The US$3.9b market-cap posted a loss in its most recent financial year of -US$139.1m and a latest trailing-twelve-month loss of -US$212.0m leading to an even wider gap between loss and breakeven. The most pressing concern for investors is ZLAB’s path to profitability – when will it breakeven? In this article, I will touch on the expectations for ZLAB’s growth and when analysts expect the company to become profitable.
According to the 8 industry analysts covering ZLAB, the consensus is breakeven is near. They expect the company to post a final loss in 2021, before turning a profit of US$96m in 2022. So, ZLAB is predicted to breakeven approximately 2 years from now. In order to meet this breakeven date, I calculated the rate at which ZLAB must grow year-on-year. It turns out an average annual growth rate of 54% is expected, which signals high confidence from analysts. If this rate turns out to be too aggressive, ZLAB may become profitable much later than analysts predict.
I’m not going to go through company-specific developments for ZLAB given that this is a high-level summary, though, keep in mind that typically a biotech has lumpy cash flows which are contingent on the product type and stage of development the company is in. So, a high growth rate is not out of the ordinary, particularly when a company is in a period of investment.
One thing I’d like to point out is that ZLAB has managed its capital judiciously, with debt making up 1.9% of equity. This means that ZLAB has predominantly funded its operations from equity capital,and its low debt obligation reduces the risk around investing in the loss-making company.
There are key fundamentals of ZLAB 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 ZLAB, take a look at ZLAB’s company page on Simply Wall St. I’ve also put together a list of key factors you should further research:
- Valuation: What is ZLAB 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 ZLAB is currently mispriced by the market.
- Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on Zai Lab’s board and the CEO’s back ground.
- 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.
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