With the business potentially at an important milestone, we thought we'd take a closer look at Armour Energy Limited's (ASX:AJQ) future prospects. Armour Energy Limited, together with its subsidiaries, focuses on the discovery, development, and production of natural oil and gas, and associated liquid resources in Australia. The AU$18m market-cap company posted a loss in its most recent financial year of AU$12m and a latest trailing-twelve-month loss of AU$26m leading to an even wider gap between loss and breakeven. The most pressing concern for investors is Armour Energy's path to profitability – when will it breakeven? In this article, we will touch on the expectations for the company's growth and when analysts expect it to become profitable.
Expectations from some of the Australian Oil and Gas analysts is that Armour Energy is on the verge of breakeven. They expect the company to post a final loss in 2021, before turning a profit of AU$2.5m in 2022. 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 105% is expected, which is extremely buoyant. If this rate turns out to be too aggressive, the company may become profitable much later than analysts predict.
We're not going to go through company-specific developments for Armour Energy given that this is a high-level summary, however, bear in mind that by and large 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.
One thing we would like to bring into light with Armour Energy is its relatively high level of debt. Typically, debt shouldn’t exceed 40% of your equity, which in Armour Energy's case is 65%. Note that a higher debt obligation increases the risk around investing in the loss-making company.
There are too many aspects of Armour Energy to cover in one brief article, but the key fundamentals for the company can all be found in one place – Armour Energy's company page on Simply Wall St. We've also put together a list of essential factors you should further research:
Historical Track Record: What has Armour Energy'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.
Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on Armour Energy's board and the CEO’s background.
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.