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Afterpay Limited's (ASX:APT) Profit Outlook

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·3-min read
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We feel now is a pretty good time to analyse Afterpay Limited's (ASX:APT) business as it appears the company may be on the cusp of a considerable accomplishment. Afterpay Limited provides payments solutions for customers, merchants, and businesses in Australia, New Zealand, the United States, Canada, and the United Kingdom. The company’s loss has recently broadened since it announced a AU$20m loss in the full financial year, compared to the latest trailing-twelve-month loss of AU$67m, moving it further away from breakeven. Many investors are wondering about the rate at which Afterpay will turn a profit, with the big question being “when will the company breakeven?” 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 Afterpay

According to the 14 industry analysts covering Afterpay, the consensus is that breakeven is near. They expect the company to post a final loss in 2021, before turning a profit of AU$65m 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 65%, which is extremely buoyant. If this rate turns out to be too aggressive, the company may become profitable much later than analysts predict.

earnings-per-share-growth
earnings-per-share-growth

We're not going to go through company-specific developments for Afterpay given that this is a high-level summary, but, take into account that generally a high growth rate is not out of the ordinary, particularly when a company is in a period of investment.

One thing we’d like to point out is that The company has managed its capital judiciously, with debt making up 6.8% of equity. This means that it has predominantly funded its operations from equity capital, and its low debt obligation reduces the risk around investing in the loss-making company.

Next Steps:

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

  1. Historical Track Record: What has Afterpay's 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 Afterpay'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.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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