NEXTDC Limited (ASX:NXT) Has Found A Path To Profitability

By
Simply Wall St
Published
November 23, 2021
ASX:NXT
Source: Shutterstock

With the business potentially at an important milestone, we thought we'd take a closer look at NEXTDC Limited's (ASX:NXT) future prospects. NEXTDC Limited, a technology company, provides data center outsourcing solutions, connectivity services, and infrastructure management software in Australia. On 30 June 2021, the AU$5.4b market-cap company posted a loss of AU$21m for its most recent financial year. Many investors are wondering about the rate at which NEXTDC will turn a profit, with the big question being “when will the company breakeven?” We've put together a brief outline of industry analyst expectations for the company, its year of breakeven and its implied growth rate.

Check out our latest analysis for NEXTDC

According to the 15 industry analysts covering NEXTDC, the consensus is that breakeven is near. They anticipate the company to incur a final loss in 2021, before generating positive profits of AU$5.7m in 2022. The company is therefore projected to breakeven around a year from now or less! How fast will the company have to grow to reach the consensus forecasts that anticipate breakeven by 2022? Working backwards from analyst estimates, it turns out that they expect the company to grow 40% year-on-year, on average, which signals high confidence from analysts. If this rate turns out to be too aggressive, the company may become profitable much later than analysts predict.

earnings-per-share-growth
ASX:NXT Earnings Per Share Growth November 24th 2021

We're not going to go through company-specific developments for NEXTDC given that this is a high-level summary, but, keep in mind that generally a high growth rate is not out of the ordinary, particularly when a company is in a period of investment.

One thing we would like to bring into light with NEXTDC is its relatively high level of debt. Typically, debt shouldn’t exceed 40% of your equity, which in NEXTDC's case is 47%. Note that a higher debt obligation increases the risk around investing in the loss-making company.

Next Steps:

There are too many aspects of NEXTDC to cover in one brief article, but the key fundamentals for the company can all be found in one place – NEXTDC's company page on Simply Wall St. We've also compiled a list of pertinent aspects you should further research:

  1. Historical Track Record: What has NEXTDC'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 NEXTDC'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.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

Discounted cash flow calculation for every stock

Simply Wall St does a detailed discounted cash flow calculation every 6 hours for every stock on the market, so if you want to find the intrinsic value of any company just search here. It’s FREE.


Simply Wall St character - Warren

Simply Wall St

Simply Wall St is focused on providing unbiased, high-quality research coverage on every listed company in the world. Our research team consists of data scientists and multiple equity analysts with over two decades worth of financial markets experience between them.