Palla Pharma Limited (ASX:PAL) Is About To Turn The Corner

By
Simply Wall St
Published
September 01, 2021
Source: Shutterstock

Palla Pharma Limited (ASX:PAL) is possibly approaching a major achievement in its business, so we would like to shine some light on the company. Palla Pharma Limited, a vertically integrated pharmaceutical company, produces and distributes narcotic raw materials, active pharmaceutical ingredients, and finished dosage formulations for pharmaceutical markets in Australia and Norway. With the latest financial year loss of AU$35m and a trailing-twelve-month loss of AU$59m, the AU$45m market-cap company amplified its loss by moving further away from its breakeven target. As path to profitability is the topic on Palla Pharma's investors mind, we've decided to gauge market sentiment. Below we will provide a high-level summary of the industry analysts’ expectations for the company.

View our latest analysis for Palla Pharma

According to some industry analysts covering Palla Pharma, breakeven is near. They expect the company to post a final loss in 2020, before turning a profit of AU$3.4m in 2021. The company is therefore projected to breakeven around a year from now or less! We calculated the rate at which the company must grow to meet the consensus forecasts predicting breakeven within 12 months. It turns out an average annual growth rate of 166% is expected, which is extremely buoyant. If this rate turns out to be too aggressive, the company may become profitable much later than analysts predict.

earnings-per-share-growth
ASX:PAL Earnings Per Share Growth September 2nd 2021

Given this is a high-level overview, we won’t go into details of Palla Pharma's upcoming projects, though, bear in mind that generally life science companies, depending on the stage of product development, 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 Palla Pharma is its relatively high level of debt. Generally, the rule of thumb is debt shouldn’t exceed 40% of your equity, which in Palla Pharma's case is 75%. 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 Palla Pharma, so if you are interested in understanding the company at a deeper level, take a look at Palla Pharma's company page on Simply Wall St. We've also compiled a list of pertinent factors you should further examine:

  1. Historical Track Record: What has Palla Pharma'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 Palla Pharma'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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