Market Sentiment Around Loss-Making Avesoro Resources Inc. (TSE:ASO)

Avesoro Resources Inc.’s (TSE:ASO): Avesoro Resources Inc. explores for, develops, and operates gold assets in West Africa. With the latest financial year loss of -US$27.5m and a trailing-twelve month of -US$15.7m, the CA$218m market-cap alleviates its loss by moving closer towards its target of breakeven. Many investors are wondering the rate at which ASO will turn a profit, with the big question being “when will the company breakeven?” I’ve put together a brief outline of industry analyst expectations for ASO, its year of breakeven and its implied growth rate.

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ASO is bordering on breakeven, according to the 4 Metals and Mining analysts. They expect the company to post a final loss in 2019, before turning a profit of US$45m in 2020. ASO is therefore projected to breakeven around a couple of months from now! What rate will ASO have to grow year-on-year in order to breakeven on this date? Using a line of best fit, I calculated an average annual growth rate of 41%, which is extremely buoyant. Should the business grow at a slower rate, it will become profitable at a later date than expected.

TSX:ASO Past Future Earnings January 30th 19
TSX:ASO Past Future Earnings January 30th 19

Given this is a high-level overview, I won’t go into details of ASO’s upcoming projects, however, keep in mind that typically metals and mining companies, depending on the stage of operation and metals mined, have irregular periods of cash flow. This means that a high growth rate is not unusual, especially if the company is currently in an investment period.

Before I wrap up, there’s one issue worth mentioning. ASO currently has a debt-to-equity ratio of 115%. Generally, the rule of thumb is debt shouldn’t exceed 40% of your equity, which in ASO’s case, it has significantly overshot. Note that a higher debt obligation increases the risk in investing in the loss-making company.

Next Steps:

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

  1. Valuation: What is ASO 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 ASO 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 Avesoro Resources’s board and the CEO’s back ground.
  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.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.