When Can We Expect A Profit From Zip Co Limited (ASX:Z1P)?

Zip Co Limited’s (ASX:Z1P): Zip Co Limited provides point-of-sale credit and digital payment services to consumers and merchants in Australia and New Zealand. The AU$304m market-cap company announced a latest loss of -AU$22.5m on 30 June 2018 for its most recent financial year result. The most pressing concern for investors is Z1P’s path to profitability – when will it breakeven? Below I will provide a high-level summary of the industry analysts’ expectations for Z1P.

Check out our latest analysis for Zip Co

Consensus from the 3 Consumer Finance analysts is Z1P is on the verge of breakeven. They anticipate the company to incur a final loss in 2019, before generating positive profits of AU$3.8m in 2020. Therefore, Z1P is expected to breakeven roughly 2 years from today. How fast will Z1P 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 94% year-on-year, on average, which signals high confidence from analysts. If this rate turns out to be too aggressive, Z1P may become profitable much later than analysts predict.

ASX:Z1P Past Future Earnings November 28th 18
ASX:Z1P Past Future Earnings November 28th 18

Given this is a high-level overview, I won’t go into details of Z1P’s upcoming projects, but, take into account 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. Z1P currently has a debt-to-equity ratio of over 2x. Generally, the rule of thumb is debt shouldn’t exceed 40% of your equity, and Z1P has considerably exceeded this. Note that a higher debt obligation increases the risk around investing in the loss-making company.

Next Steps:

This article is not intended to be a comprehensive analysis on Z1P, so if you are interested in understanding the company at a deeper level, take a look at Z1P’s company page on Simply Wall St. I’ve also compiled a list of relevant aspects you should further research:

  1. Historical Track Record: What has Z1P’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 Zip Co’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.