Breakeven On The Horizon For STEP Energy Services Ltd. (TSE:STEP)

STEP Energy Services Ltd. (TSE:STEP) is possibly approaching a major achievement in its business, so we would like to shine some light on the company. STEP Energy Services Ltd., an oilfield service company, provides integrated coiled tubing, fracturing, and wireline solutions to service oil and natural gas wells in Canada and the United States. The CA$98m market-cap company announced a latest loss of CA$119m on 31 December 2020 for its most recent financial year result. Many investors are wondering about the rate at which STEP Energy Services 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.

View our latest analysis for STEP Energy Services

STEP Energy Services is bordering on breakeven, according to the 7 Canadian Energy Services analysts. They anticipate the company to incur a final loss in 2022, before generating positive profits of CA$12m in 2023. The company is therefore projected to breakeven around 2 years from now. In order to meet this breakeven date, we calculated the rate at which the company must grow year-on-year. It turns out an average annual growth rate of 107% is expected, 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 STEP Energy Services given that this is a high-level summary, but, keep in mind that by and large an energy business has lumpy cash flows which are contingent on the natural resource and stage at which the company is operating. So, 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 STEP Energy Services is its debt-to-equity ratio of 101%. Typically, debt shouldn’t exceed 40% of your equity, which in this case, the company has significantly overshot. A higher level of debt requires more stringent capital management which increases the risk around investing in the loss-making company.

Next Steps:

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

1. Valuation: What is STEP Energy Services 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 STEP Energy Services 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 STEP Energy Services’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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