We Might See A Profit From Vallourec S.A. (EPA:VK) Soon

Published
January 28, 2022
ENXTPA:VK
Source: Shutterstock

With the business potentially at an important milestone, we thought we'd take a closer look at Vallourec S.A.'s (EPA:VK) future prospects. Vallourec S.A., through its subsidiaries, provides tubular solutions for oil and gas, industry, and power generation in Europe, North America, South America, Asia, the Middle East, and internationally. The €1.9b market-cap company’s loss lessened since it announced a €1.2b loss in the full financial year, compared to the latest trailing-twelve-month loss of €619m, as it approaches breakeven. As path to profitability is the topic on Vallourec's investors mind, we've decided to gauge market sentiment. 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 Vallourec

Vallourec is bordering on breakeven, according to the 6 French Energy Services analysts. They anticipate the company to incur a final loss in 2021, before generating positive profits of €124m in 2022. 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 42%, which signals high confidence from analysts. If this rate turns out to be too aggressive, the company may become profitable much later than analysts predict.

earnings-per-share-growth
ENXTPA:VK Earnings Per Share Growth January 28th 2022

Underlying developments driving Vallourec's growth isn’t the focus of this broad overview, however, take into account 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. This means that a high growth rate is not unusual, especially if the company is currently in an investment period.

Before we wrap up, there’s one issue worth mentioning. Vallourec currently has a relatively high level of debt. Generally, the rule of thumb is debt shouldn’t exceed 40% of your equity, which in Vallourec's case is 93%. A higher level of debt requires more stringent capital management which increases the risk in investing in the loss-making company.

Next Steps:

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

  1. Valuation: What is Vallourec 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 Vallourec 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 Vallourec’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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