With the business potentially at an important milestone, we thought we'd take a closer look at Archaea Energy Inc.'s (NYSE:LFG) future prospects. Archaea Energy Inc. operates as a renewable natural gas (RNG) and renewable electricity producer in the United States. With the latest financial year loss of US$24m and a trailing-twelve-month loss of US$40m, the US$2.2b market-cap company amplified its loss by moving further away from its breakeven target. Many investors are wondering about the rate at which Archaea Energy 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 5 of the American Oil and Gas analysts is that Archaea Energy is on the verge of breakeven. They expect the company to post a final loss in 2021, before turning a profit of US$77m in 2022. So, the company is predicted to breakeven approximately a year from now or less! How fast will the company have to grow to reach the consensus forecasts that anticipate breakeven by 2022? Working backwards from analyst estimates, it turns out that they expect the company to grow 76% year-on-year, on average, which signals high confidence from analysts. Should the business grow at a slower rate, it will become profitable at a later date than expected.
Given this is a high-level overview, we won’t go into details of Archaea Energy's upcoming projects, however, keep in mind that generally energy companies, depending on the stage of operation and resource produced, 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.
Before we wrap up, there’s one issue worth mentioning. Archaea Energy currently has a relatively high level of debt. Typically, debt shouldn’t exceed 40% of your equity, which in Archaea Energy's case is 42%. Note that a higher debt obligation increases the risk around investing in the loss-making company.
There are key fundamentals of Archaea Energy 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 Archaea Energy, take a look at Archaea Energy's company page on Simply Wall St. We've also put together a list of key aspects you should further research:
Valuation: What is Archaea Energy 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 Archaea Energy 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 Archaea 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.