Is Cellectis (EPA:ALCLS) Using Debt In A Risky Way?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We can see that Cellectis S.A. (EPA:ALCLS) does use debt in its business. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Cellectis

What Is Cellectis's Net Debt?

The image below, which you can click on for greater detail, shows that at September 2024 Cellectis had debt of US$44.7m, up from US$31.5m in one year. But on the other hand it also has US$159.1m in cash, leading to a US$114.4m net cash position.

How Healthy Is Cellectis' Balance Sheet?

According to the last reported balance sheet, Cellectis had liabilities of US$165.7m due within 12 months, and liabilities of US$100.8m due beyond 12 months. On the other hand, it had cash of US$159.1m and US$27.9m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$79.5m.

This deficit isn't so bad because Cellectis is worth US$169.8m, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. While it does have liabilities worth noting, Cellectis also has more cash than debt, so we're pretty confident it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Cellectis's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year Cellectis wasn't profitable at an EBIT level, but managed to grow its revenue by 47%, to US$36m. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is Cellectis?

While Cellectis lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow US$60m. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. One positive is that Cellectis is growing revenue apace, which makes it easier to sell a growth story and raise capital if need be. But that doesn't change our opinion that the stock is risky. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. We've identified 2 warning signs with Cellectis , and understanding them should be part of your investment process.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.