Pilbara Minerals Limited's (ASX:PLS) Path To Profitability

By
Simply Wall St
Published
July 29, 2020
ASX:PLS

Pilbara Minerals Limited's (ASX:PLS): Pilbara Minerals Limited engages in the exploration, development, and operation of mineral resources in Australia. The AU$812m market-cap posted a loss in its most recent financial year of AU$28.9m and a latest trailing-twelve-month loss of AU$80.4m leading to an even wider gap between loss and breakeven. Many investors are wondering the rate at which PLS will turn a profit, with the big question being “when will the company breakeven?” In this article, I will touch on the expectations for PLS’s growth and when analysts expect the company to become profitable.

See our latest analysis for Pilbara Minerals

Consensus from the 5 Metals and Mining analysts is PLS is on the verge of breakeven. They anticipate the company to incur a final loss in 2021, before generating positive profits of AU$39m in 2022. So, PLS is predicted to breakeven approximately 2 years from today. In order to meet this breakeven date, I calculated the rate at which PLS must grow year-on-year. It turns out an average annual growth rate of 93% is expected, which is rather optimistic! If this rate turns out to be too aggressive, PLS may become profitable much later than analysts predict.

earnings-per-share-growth
ASX:PLS Earnings Per Share Growth July 30th 2020

Given this is a high-level overview, I won’t go into details of PLS’s upcoming projects, but, take into account that by and large 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 that a high growth rate is not unusual, especially if the company is currently in an investment period.

Before I wrap up, there’s one aspect worth mentioning. PLS has managed its capital judiciously, with debt making up 33% of equity. This means that PLS has predominantly funded its operations from equity capital,and its low debt obligation reduces the risk around investing in the loss-making company.

Next Steps:

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

  1. Valuation: What is PLS 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 PLS 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 Pilbara Minerals’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.

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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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