Opthea Limited’s (ASX:OPT) Profit Outlook

Opthea Limited’s (ASX:OPT): Opthea Limited, a biotechnology company, develops and commercializes therapies primarily for eye disease in Australia. The AU$726m market-cap company announced a latest loss of -AU$20.9m on 30 June 2019 for its most recent financial year result. The most pressing concern for investors is OPT’s path to profitability – when will it breakeven? Below I will provide a high-level summary of the industry analysts’ expectations for OPT.

View our latest analysis for Opthea

OPT is bordering on breakeven, according to the 2 Biotechs analysts. They anticipate the company to incur a final loss in 2020, before generating positive profits of AU$130m in 2021. Therefore, OPT is expected to breakeven roughly 2 years from now. What rate will OPT have to grow year-on-year in order to breakeven on this date? Using a line of best fit, I calculated an average annual growth rate of 48%, which signals high confidence from analysts. Should the business grow at a slower rate, it will become profitable at a later date than expected.

ASX:OPT Past and Future Earnings, November 19th 2019
ASX:OPT Past and Future Earnings, November 19th 2019

I’m not going to go through company-specific developments for OPT given that this is a high-level summary, but, bear in mind that by and large biotechs, depending on the stage of product development, have irregular periods of cash flow. 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. OPT currently has no debt on its balance sheet, which is quite unusual for a cash-burning biotech, which usually has a high level of debt relative to its equity. This means that OPT has been operating purely on its equity investment and has no debt burden. This aspect reduces the risk around investing in the loss-making company.

Next Steps:

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

  1. Historical Track Record: What has OPT’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 Opthea’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.