Armour Energy Limited (ASX:AJQ) Could Be Less Than A Year Away From Profitability

With the business potentially at an important milestone, we thought we'd take a closer look at Armour Energy Limited's (ASX:AJQ) future prospects. Armour Energy Limited, together with its subsidiaries, focuses on the discovery, development, and production of natural gas and associated liquid resources in Australia. On 30 June 2020, the AU$69m market-cap company posted a loss of AU$9.6m for its most recent financial year. The most pressing concern for investors is Armour Energy's path to profitability – when will it breakeven? Below we will provide a high-level summary of the industry analysts’ expectations for the company.

Check out our latest analysis for Armour Energy

Expectations from some of the Australian Oil and Gas analysts is that Armour Energy is on the verge of breakeven. They expect the company to post a final loss in 2020, before turning a profit of AU$6.0m in 2021. Therefore, the company is expected to breakeven roughly 12 months from now or less. How fast will the company have to grow to reach the consensus forecasts that anticipate breakeven by 2021? Working backwards from analyst estimates, it turns out that they expect the company to grow 126% year-on-year, on average, which is extremely buoyant. Should the business grow at a slower rate, it will become profitable at a later date than expected.

Underlying developments driving Armour Energy's growth isn’t the focus of this broad overview, though, take into account that typically energy companies, depending on the stage of operation and resource produced, have irregular periods of cash flow. This means, large upcoming growth rates are not abnormal as the company is beginning to reap the benefits of earlier investments.

One thing we would like to bring into light with Armour Energy is its debt-to-equity ratio of 130%. Generally, the rule of thumb is debt shouldn’t exceed 40% of your equity, and the company 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 Armour Energy, so if you are interested in understanding the company at a deeper level, take a look at Armour Energy's company page on Simply Wall St. We've also put together a list of essential factors you should further examine:

1. Historical Track Record: What has Armour Energy'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 Armour Energy'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.

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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. 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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