Petrus Resources Ltd.’s (TSE:PRQ): Petrus Resources Ltd., an energy company, engages in the acquisition, exploration, development, and exploitation of oil and gas development assets in western Canada. On 31 December 2018, the CA$22m market-cap posted a loss of -CA$3.3m for its most recent financial year. The most pressing concern for investors is PRQ’s path to profitability – when will it breakeven? I’ve put together a brief outline of industry analyst expectations for PRQ, its year of breakeven and its implied growth rate.
Consensus from the 2 Oil and Gas analysts is PRQ is on the verge of breakeven. They expect the company to post a final loss in 2019, before turning a profit of CA$4.1m in 2020. Therefore, PRQ is expected to breakeven roughly a few months from now. How fast will PRQ have to grow each year in order to reach the breakeven point by 2020? Working backwards from analyst estimates, it turns out that they expect the company to grow 111% 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.
Underlying developments driving PRQ’s growth isn’t the focus of this broad overview, however, bear in mind that generally an oil and gas business has lumpy cash flows which are contingent on the natural resource and stage at which the company is operating. This means, large upcoming growth rates are not abnormal as the company is beginning to reap the benefits of earlier investments.
One thing I would like to bring into light with PRQ is its relatively high level of debt. Generally, the rule of thumb is debt shouldn’t exceed 40% of your equity, which in PRQ’s case is 89%. Note that a higher debt obligation increases the risk around investing in the loss-making company.
This article is not intended to be a comprehensive analysis on PRQ, so if you are interested in understanding the company at a deeper level, take a look at PRQ’s company page on Simply Wall St. I’ve also compiled a list of pertinent factors you should look at:
- Valuation: What is PRQ 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 PRQ is currently mispriced by the market.
- Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on Petrus Resources’s board and the CEO’s back ground.
- 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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