When Will Zip Co Limited (ASX:Z1P) Breakeven?

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. With the latest financial year loss of -AU$22.5m and a trailing-twelve month of -AU$14.7m, the AU$1.1b market-cap alleviates its loss by moving closer towards its target of breakeven. The most pressing concern for investors is Z1P’s path to profitability – when will it breakeven? I’ve put together a brief outline of industry analyst expectations for Z1P, its year of breakeven and its implied growth rate.

Check out our latest analysis for Zip Co

According to the 4 industry analysts covering Z1P, the consensus is breakeven is near. They anticipate the company to incur a final loss in 2020, before generating positive profits of AU$11m in 2021. Z1P is therefore projected to breakeven around 2 years from now. How fast will Z1P have to grow each year in order to reach the breakeven point by 2021? Working backwards from analyst estimates, it turns out that they expect the company to grow 82% 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 and Future Earnings, July 23rd 2019
ASX:Z1P Past and Future Earnings, July 23rd 2019

Given this is a high-level overview, I won’t go into details of Z1P’s upcoming projects, however, keep 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. Z1P currently has a debt-to-equity ratio of over 2x. Typically, debt shouldn’t exceed 40% of your equity, and Z1P 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:

There are too many aspects of Z1P to cover in one brief article, but the key fundamentals for the company can all be found in one place – Z1P’s company page on Simply Wall St. I’ve also put together a list of relevant aspects you should further examine:

  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.

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.