ReadCloud Limited's (ASX:RCL) Has Found A Path To Profitability

We feel now is a pretty good time to analyse ReadCloud Limited's (ASX:RCL) business as it appears the company may be on the cusp of a considerable accomplishment. ReadCloud Limited provides eBook solutions to secondary schools in Australia. On 30 June 2020, the AU$80m market-cap company posted a loss of AU$982k for its most recent financial year. The most pressing concern for investors is ReadCloud's path to profitability – when will it breakeven? We've put together a brief outline of industry analyst expectations for the company, its year of breakeven and its implied growth rate.

See our latest analysis for ReadCloud

ReadCloud is bordering on breakeven, according to some Australian Software analysts. They anticipate the company to incur a final loss in 2020, before generating positive profits of AU$800k in 2021. 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 2021? Working backwards from analyst estimates, it turns out that they expect the company to grow 78% year-on-year, on average, which is rather optimistic! Should the business grow at a slower rate, it will become profitable at a later date than expected.

We're not going to go through company-specific developments for ReadCloud given that this is a high-level summary, however, bear in mind that typically a high forecast growth rate is not unusual for a company that is currently undergoing an investment period.

One thing we’d like to point out is that ReadCloud has no debt on its balance sheet, which is quite unusual for a cash-burning loss-making, growth company, which typically has high debt relative to its equity. This means that the company 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 ReadCloud, so if you are interested in understanding the company at a deeper level, take a look at ReadCloud's company page on Simply Wall St. We've also compiled a list of relevant factors you should look at:

1. Valuation: What is ReadCloud 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 ReadCloud 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 ReadCloud’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. 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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