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Steppe Gold Ltd. (TSE:STGO) is possibly approaching a major achievement in its business, so we would like to shine some light on the company. Steppe Gold Ltd. acquires, explores for, develops, and operates precious metals in Mongolia. The CA$73m market-cap company posted a loss in its most recent financial year of US$23m and a latest trailing-twelve-month loss of US$30m leading to an even wider gap between loss and breakeven. As path to profitability is the topic on Steppe Gold'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.
See our latest analysis for Steppe Gold
Steppe Gold is bordering on breakeven, according to the 4 Canadian Metals and Mining analysts. They anticipate the company to incur a final loss in 2021, before generating positive profits of US$36m in 2022. So, the company is predicted to breakeven approximately 12 months from now or less. At what rate will the company have to grow in order to realise the consensus estimates forecasting breakeven in under 12 months? Using a line of best fit, we calculated an average annual growth rate of 44%, 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.
Given this is a high-level overview, we won’t go into details of Steppe Gold's upcoming projects, but, bear in mind that by and large a metal and mining business has lumpy cash flows which are contingent on the natural resource mined and stage at which the company is operating. This means that a high growth rate is not unusual, especially if the company is currently in an investment period.
One thing we would like to bring into light with Steppe Gold is its debt-to-equity ratio of over 2x. Generally, the rule of thumb is debt shouldn’t exceed 40% of your equity, which in this case, the company has significantly overshot. Note that a higher debt obligation increases the risk in investing in the loss-making company.
Next Steps:
This article is not intended to be a comprehensive analysis on Steppe Gold, so if you are interested in understanding the company at a deeper level, take a look at Steppe Gold's company page on Simply Wall St. We've also compiled a list of key factors you should look at:
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Valuation: What is Steppe Gold 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 Steppe Gold is currently mispriced by the market.
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Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on Steppe Gold’s board and the CEO’s background.
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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.