Red 5 Limited (ASX:RED) Has Found A Path To Profitability

We feel now is a pretty good time to analyse Red 5 Limited's (ASX:RED) business as it appears the company may be on the cusp of a considerable accomplishment. Red 5 Limited engages in the exploration, production, and mining of gold deposits and mineral properties in the Philippines and Australia. On 30 June 2023, the AU$1.1b market-cap company posted a loss of AU$8.7m for its most recent financial year. The most pressing concern for investors is Red 5's path to profitability – when will it breakeven? Below we will provide a high-level summary of the industry analysts’ expectations for the company.

View our latest analysis for Red 5

Consensus from 4 of the Australian Metals and Mining analysts is that Red 5 is on the verge of breakeven. They expect the company to post a final loss in 2023, before turning a profit of AU$48m in 2024. Therefore, the company is expected to breakeven roughly a year from now or less! How fast will the company have to grow to reach the consensus forecasts that anticipate breakeven by 2024? Working backwards from analyst estimates, it turns out that they expect the company to grow 57% year-on-year, on average, which is extremely buoyant. If this rate turns out to be too aggressive, the company may become profitable much later than analysts predict.

Given this is a high-level overview, we won’t go into details of Red 5's upcoming projects, but, take into account that typically 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. So, a high growth rate is not out of the ordinary, particularly when a company is in a period of investment.

One thing we’d like to point out is that The company has managed its capital prudently, with debt making up 38% of equity. This means that it 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:

There are too many aspects of Red 5 to cover in one brief article, but the key fundamentals for the company can all be found in one place – Red 5's company page on Simply Wall St. We've also put together a list of important factors you should further examine:

1. Valuation: What is Red 5 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 Red 5 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 Red 5’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. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.