We Might See A Profit From Shanghai Henlius Biotech, Inc. (HKG:2696) Soon

We feel now is a pretty good time to analyse Shanghai Henlius Biotech, Inc.'s (HKG:2696) business as it appears the company may be on the cusp of a considerable accomplishment. Shanghai Henlius Biotech, Inc. engages in the research and development of biologic medicines with a focus on oncology, autoimmune diseases, and ophthalmic diseases. The HK$5.4b market-cap company’s loss lessened since it announced a CN¥695m loss in the full financial year, compared to the latest trailing-twelve-month loss of CN¥203m, as it approaches breakeven. As path to profitability is the topic on Shanghai Henlius Biotech's investors mind, we've decided to gauge market sentiment. In this article, we will touch on the expectations for the company's growth and when analysts expect it to become profitable.

Check out our latest analysis for Shanghai Henlius Biotech

According to the 4 industry analysts covering Shanghai Henlius Biotech, the consensus is that breakeven is near. They anticipate the company to incur a final loss in 2022, before generating positive profits of CN¥463m in 2023. Therefore, the company is expected to breakeven roughly 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 66% is expected, which is extremely buoyant. Should the business grow at a slower rate, it will become profitable at a later date than expected.

Underlying developments driving Shanghai Henlius Biotech's growth isn’t the focus of this broad overview, but, keep in mind that generally a biotech has lumpy cash flows which are contingent on the product type and stage of development the company is in. This means that a high growth rate is not unusual, especially if the company is currently in an investment period.

One thing we would like to bring into light with Shanghai Henlius Biotech is its debt-to-equity ratio of 195%. Generally, the rule of thumb is 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 in investing in the loss-making company.

Next Steps:

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

1. Valuation: What is Shanghai Henlius Biotech 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 Shanghai Henlius Biotech 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 Shanghai Henlius Biotech’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. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.