Bubs Australia Limited’s (ASX:BUB) Shift From Loss To Profit
October 5, 2020
With the business potentially at an important milestone, we thought we’d take a closer look at Bubs Australia Limited’s (ASX:BUB) future prospects. Bubs Australia Limited, together with its subsidiaries, engages in the production and sale of various infant nutrition products in Australia, China, and internationally. The AU$432m market-cap company announced a latest loss of AU$7.8m on 30 June 2020 for its most recent financial year result. As path to profitability is the topic on Bubs Australia’s investors mind, we’ve decided to gauge market sentiment. In this article, we will touch on the expectations for the company’s growth and when analysts expect it to become profitable.
According to the 3 industry analysts covering Bubs Australia, the consensus is that breakeven is near.
They anticipate the company to incur a final loss in 2021, before generating positive profits of AU$9.1m in 2022. Therefore, the company is expected to breakeven roughly 2 years from today. 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 53%, 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 Bubs Australia given that this is a high-level summary, however, bear in mind that by and large 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. The company has managed its capital judiciously, with debt making up 1.5% 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.
BUB Price at posting:
72.5¢ Sentiment: Buy Disclosure: Held
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