Market Sentiment Around Loss-Making Northern Ocean Ltd. (OB:NOL)

We feel now is a pretty good time to analyse Northern Ocean Ltd.'s (OB:NOL) business as it appears the company may be on the cusp of a considerable accomplishment. Northern Ocean Ltd., a drilling contractor, provides offshore contract drilling services for the oil and gas industry worldwide. On 31 December 2023, the kr1.5b market-cap company posted a loss of US$71m for its most recent financial year. As path to profitability is the topic on Northern Ocean'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.

Check out our latest analysis for Northern Ocean

Northern Ocean is bordering on breakeven, according to the 2 Norwegian Energy Services analysts. They expect the company to post a final loss in 2024, before turning a profit of US$40m in 2025. Therefore, the company is expected to breakeven just over a year 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 96% 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.

Given this is a high-level overview, we won’t go into details of Northern Ocean's upcoming projects, but, bear in mind that typically 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.

Before we wrap up, there’s one issue worth mentioning. Northern Ocean currently has a debt-to-equity ratio of 124%. Generally, the rule of thumb is debt shouldn’t exceed 40% of your equity, which in this case, the company has significantly overshot. Note that a higher debt obligation increases the risk in investing in the loss-making company.

Next Steps:

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

1. Valuation: What is Northern Ocean 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 Northern Ocean 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 Northern Ocean’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.