Zip Co Limited’s (ASX:Z1P) Shift From Loss To Profit
Zip Co Limited’s (ASX:Z1P): Zip Co Limited provides point-of-sale credit and digital payment services to consumers and merchants in Australia and New Zealand. On 30 June 2018, the AU$311m market-cap posted a loss of -AU$22.5m for its most recent financial year. Many investors are wondering the rate at which Z1P will turn a profit, with the big question being “when will the company breakeven?” Below I will provide a high-level summary of the industry analysts’ expectations for Z1P.
Check out our latest analysis for Zip Co
Consensus from the 3 Consumer Finance analysts is Z1P is on the verge of breakeven. They anticipate the company to incur a final loss in 2019, before generating positive profits of AU$4.6m in 2020. So, Z1P is predicted to breakeven approximately 2 years from today. In order to meet this breakeven date, I calculated the rate at which Z1P must grow year-on-year. It turns out an average annual growth rate of 91% is expected, which signals high confidence from analysts. If this rate turns out to be too aggressive, Z1P may become profitable much later than analysts predict.
Underlying developments driving Z1P’s growth isn’t the focus of this broad overview, however, keep in mind that typically a high forecast growth rate is not unusual for a company that is currently undergoing an investment period.
Before I wrap up, there’s one issue worth mentioning. Z1P currently has a debt-to-equity ratio of over 2x. Typically, debt shouldn’t exceed 40% of your equity, which in Z1P’s case, it has significantly overshot. Note that a higher debt obligation increases the risk around investing in the loss-making company.
Next Steps:
There are key fundamentals of Z1P which are not covered in this article, but I must stress again that this is merely a basic overview. For a more comprehensive look at Z1P, take a look at Z1P’s company page on Simply Wall St. I’ve also put together a list of essential factors you should look at:
Historical Track Record: What has Z1P’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 Zip Co’s board and the CEO’s back ground.
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.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
