Breakeven Is Near for Petra Diamonds Limited (LON:PDL)

By
Simply Wall St
Published
May 19, 2021
LSE:PDL
Source: Shutterstock

With the business potentially at an important milestone, we thought we'd take a closer look at Petra Diamonds Limited's (LON:PDL) future prospects. Petra Diamonds Limited engages in the mining, exploration, processing, sorting, and sale of rough diamonds in South Africa and Tanzania. The UK£140m market-cap company’s loss lessened since it announced a US$190m loss in the full financial year, compared to the latest trailing-twelve-month loss of US$127m, as it approaches breakeven. As path to profitability is the topic on Petra Diamonds' 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.

See our latest analysis for Petra Diamonds

Consensus from 7 of the British Metals and Mining analysts is that Petra Diamonds is on the verge of breakeven. They expect the company to post a final loss in 2020, before turning a profit of US$65m in 2021. The company is therefore projected to breakeven around a year from now or less! We calculated the rate at which the company must grow to meet the consensus forecasts predicting breakeven within 12 months. It turns out an average annual growth rate of 44% is expected, which signals high confidence from analysts. Should the business grow at a slower rate, it will become profitable at a later date than expected.

earnings-per-share-growth
LSE:PDL Earnings Per Share Growth May 20th 2021

Underlying developments driving Petra Diamonds' growth isn’t the focus of this broad overview, though, bear 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 we wrap up, there’s one issue worth mentioning. Petra Diamonds currently has a debt-to-equity ratio of over 2x. Typically, debt shouldn’t exceed 40% of your equity, and the company has considerably exceeded this. A higher level of debt requires more stringent capital management which increases the risk around investing in the loss-making company.

Next Steps:

There are key fundamentals of Petra Diamonds which are not covered in this article, but we must stress again that this is merely a basic overview. For a more comprehensive look at Petra Diamonds, take a look at Petra Diamonds' company page on Simply Wall St. We've also put together a list of relevant factors you should further examine:

  1. Valuation: What is Petra Diamonds 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 Petra Diamonds 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 Petra Diamonds’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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