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Market Sentiment Around Loss-Making Dropsuite Limited (ASX:DSE)

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·3-min read
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  • EXMXF

With the business potentially at an important milestone, we thought we'd take a closer look at Dropsuite Limited's (ASX:DSE) future prospects. Dropsuite Limited operates a cloud-based software platform worldwide. With the latest financial year loss of AU$2.1m and a trailing-twelve-month loss of AU$947k, the AU$136m market-cap company alleviated its loss by moving closer towards its target of breakeven. Many investors are wondering about the rate at which Dropsuite 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 Dropsuite

Dropsuite is bordering on breakeven, according to some Australian Software analysts. They expect the company to post a final loss in 2021, before turning a profit of AU$1.4m in 2022. Therefore, the company is expected to breakeven just over a year from today. How fast will the company have to grow each year in order to reach the breakeven point by 2022? Working backwards from analyst estimates, it turns out that they expect the company to grow 65% year-on-year, on average, 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

Given this is a high-level overview, we won’t go into details of Dropsuite's upcoming projects, however, bear in mind that typically a high forecast growth rate is not unusual for a company that is currently undergoing an investment period.

Before we wrap up, there’s one aspect worth mentioning. Dropsuite currently has no debt on its balance sheet, which is quite unusual for a cash-burning growth company, which usually has a high level of debt relative to its equity. This means that the company has been operating purely on its equity investment and has no debt burden. This aspect reduces the risk around investing in the loss-making company.

Next Steps:

There are key fundamentals of Dropsuite which are not covered in this article, but we must stress again that this is merely a basic overview. For a more comprehensive look at Dropsuite, take a look at Dropsuite's company page on Simply Wall St. We've also compiled a list of essential factors you should further research:

  1. Valuation: What is Dropsuite 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 Dropsuite 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 Dropsuite’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. 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.

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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