Investors are always looking for growth in small-cap stocks like Nordex SE (ETR:NDX1), with a market cap of €1.2b. However, an important fact which most ignore is: how financially healthy is the business? Given that NDX1 is not presently profitable, it’s vital to evaluate the current state of its operations and pathway to profitability. Let’s work through some financial health checks you may wish to consider if you’re interested in this stock. However, this is not a comprehensive overview, so I’d encourage you to dig deeper yourself into NDX1 here.
Does NDX1 Produce Much Cash Relative To Its Debt?
NDX1 has shrunk its total debt levels in the last twelve months, from €671m to €636m , which includes long-term debt. With this reduction in debt, the current cash and short-term investment levels stands at €487m to keep the business going. Moreover, NDX1 has produced €129m in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 20%, meaning that NDX1’s operating cash is sufficient to cover its debt.
Can NDX1 pay its short-term liabilities?
Looking at NDX1’s €1.5b in current liabilities, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.22x. The current ratio is calculated by dividing current assets by current liabilities. For Electrical companies, this ratio is within a sensible range since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Can NDX1 service its debt comfortably?
With debt reaching 88% of equity, NDX1 may be thought of as relatively highly levered. This is a bit unusual for a small-cap stock, since they generally have a harder time borrowing than large more established companies. However, since NDX1 is currently unprofitable, sustainability of its current state of operations becomes a concern. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
Although NDX1’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. This is only a rough assessment of financial health, and I’m sure NDX1 has company-specific issues impacting its capital structure decisions. You should continue to research Nordex to get a more holistic view of the small-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for NDX1’s future growth? Take a look at our free research report of analyst consensus for NDX1’s outlook.
- Historical Performance: What has NDX1’s returns 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.
- 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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