We feel now is a pretty good time to analyse Palla Pharma Limited's (ASX:PAL) business as it appears the company may be on the cusp of a considerable accomplishment. Palla Pharma Limited, a vertically integrated pharmaceutical company, produces and distributes narcotic raw materials, active pharmaceutical ingredients, and finished dosage formulations for pharmaceutical markets in Australia and Norway. With the latest financial year loss of AU$7.6m and a trailing-twelve-month loss of AU$13m, the AU$91m market-cap company amplified its loss by moving further away from its breakeven target. Many investors are wondering about the rate at which Palla Pharma will turn a profit, with the big question being “when will the company breakeven?” In this article, we will touch on the expectations for the company's growth and when analysts expect it to become profitable.
Consensus from 2 of the Australian Life Sciences analysts is that Palla Pharma is on the verge of breakeven. They expect the company to post a final loss in 2020, before turning a profit of AU$6.6m in 2021. The company is therefore projected 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 107%, which signals high confidence from analysts. 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 Palla Pharma given that this is a high-level summary, but, bear in mind that by and large life science companies, depending on the stage of product development, have irregular periods of cash flow. So, 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 21% 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.
There are key fundamentals of Palla Pharma 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 Palla Pharma, take a look at Palla Pharma's company page on Simply Wall St. We've also put together a list of pertinent aspects you should further research:
Valuation: What is Palla Pharma 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 Palla Pharma is currently mispriced by the market.
Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on Palla Pharma’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.
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.
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