GDS Holdings Limited's (NASDAQ:GDS) Path To Profitability

With the business potentially at an important milestone, we thought we'd take a closer look at GDS Holdings Limited's (NASDAQ:GDS) future prospects. GDS Holdings Limited, together with its subsidiaries, develops and operates data centers in the People's Republic of China. The US$21b market-cap company posted a loss in its most recent financial year of CN¥500m and a latest trailing-twelve-month loss of CN¥554m leading to an even wider gap between loss and breakeven. As path to profitability is the topic on GDS Holdings' investors mind, we've decided to gauge market sentiment. Below we will provide a high-level summary of the industry analysts’ expectations for the company.

See our latest analysis for GDS Holdings

Consensus from 24 of the American IT analysts is that GDS Holdings is on the verge of breakeven. They expect the company to post a final loss in 2021, before turning a profit of CN¥491m in 2022. Therefore, the company is expected to breakeven just over a year from now. What rate will the company have to grow year-on-year in order to breakeven on this date? Using a line of best fit, we calculated an average annual growth rate of 58%, which is extremely buoyant. Should the business grow at a slower rate, it will become profitable at a later date than expected.

We're not going to go through company-specific developments for GDS Holdings given that this is a high-level summary, but, bear in mind that by and large 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. GDS Holdings currently has a relatively high level of debt. Generally, the rule of thumb is debt shouldn’t exceed 40% of your equity, which in GDS Holdings' case is 94%. A higher level of debt requires more stringent capital management which increases the risk in investing in the loss-making company.

Next Steps:

There are too many aspects of GDS Holdings to cover in one brief article, but the key fundamentals for the company can all be found in one place – GDS Holdings' company page on Simply Wall St. We've also compiled a list of key aspects you should further research:

1. Historical Track Record: What has GDS Holdings' performance been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
2. Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on GDS Holdings' 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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