H2O Innovation Inc.'s (CVE:HEO) Has Found A Path To Profitability

We feel now is a pretty good time to analyse H2O Innovation Inc.'s (CVE:HEO) business as it appears the company may be on the cusp of a considerable accomplishment. H2O Innovation Inc. provides integrated water treatment solutions based on membrane filtration technology. The CA$182m market-cap company posted a loss in its most recent financial year of CA$4.2m and a latest trailing-twelve-month loss of CA$1.0m shrinking the gap between loss and breakeven. Many investors are wondering about the rate at which H2O Innovation will turn a profit, with the big question being “when will the company breakeven?” Below we will provide a high-level summary of the industry analysts’ expectations for the company.

View our latest analysis for H2O Innovation

H2O Innovation is bordering on breakeven, according to the 7 Canadian Machinery analysts. They expect the company to post a final loss in 2020, before turning a profit of CA$3.8m in 2021. Therefore, the company is expected to breakeven roughly 12 months from now or less. At what rate will the company have to grow in order to realise the consensus estimates forecasting breakeven in under 12 months? Using a line of best fit, we calculated an average annual growth rate of 58%, which is extremely buoyant. If this rate turns out to be too aggressive, the company may become profitable much later than analysts predict.

Underlying developments driving H2O Innovation's growth isn’t the focus of this broad overview, however, bear in mind that typically a high growth rate is not out of the ordinary, particularly when a company is in a period of investment.

Before we wrap up, there’s one aspect worth mentioning. The company has managed its capital prudently, with debt making up 31% 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:

This article is not intended to be a comprehensive analysis on H2O Innovation, so if you are interested in understanding the company at a deeper level, take a look at H2O Innovation's company page on Simply Wall St. We've also put together a list of relevant aspects you should further examine:

1. Valuation: What is H2O Innovation 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 H2O Innovation 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 H2O Innovation’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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