Hills Ltd Profitability Coming Soon…

Hills Ltd [ASX:HIL] climbed more than 6% this morning to 17.5 cents per share.

Why did the Hills Ltd Share Price Climb?

This morning, Hills said they expect a loss between $6–8 million for FY17. It’s an improvement from their $68.3 million loss in FY16. Yet the improvement hasn’t encouraged investors to stop the stock’s 63% fall this year.

The operating cash flow is currently targeted to be neutral for the second half of FY17,’ the company said. ‘Given our investments, the reduction in operating expenses, strong customer and vendor relationships and increased profitability in the Hills Health business, we expect to return to profitability in FY18.

What now for Hills Ltd?

The stock still trades on a very high valuation. Hills has a price-to-earnings (PE) ratio of 44.8-times earnings. That means investors are paying $44.80 for every $1 of earnings. Why has Hills got such a high valuation?

The company is changing. They no longer own their iconic clothesline brand. Hills has now transformed into a technology company. They’re in the health technology, security surveillance and communications business.

I’m sure some investors are expecting big things from Hills’ transformation. Yet, I’d suggest you hold off on buying. While profits are expected for FY18, you’d be better off waiting to see whether operation growth will justify a PE of 44.8-times earnings.

Regards,

Härje Ronngard,

Junior Analyst, Money Morning

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