Investors are always looking for growth in small-cap stocks like J&P-Avax SA. (ATSE:AVAX), with a market cap of €63.91M. However, an important fact which most ignore is: how financially healthy is the business? Since AVAX is loss-making right now, it’s crucial to understand the current state of its operations and pathway to profitability. I believe these basic checks tell most of the story you need to know. Nevertheless, given that I have not delve into the company-specifics, I recommend you dig deeper yourself into AVAX here.
Does AVAX generate an acceptable amount of cash through operations?
AVAX’s debt level has been constant at around €572.00M over the previous year made up of current and long term debt. At this constant level of debt, AVAX’s cash and short-term investments stands at €89.27M , ready to deploy into the business. Moving onto cash from operations, its small level of operating cash flow means calculating cash-to-debt wouldn’t be too useful, though these low levels of cash means that operational efficiency is worth a look. For this article’s sake, I won’t be looking at this today, but you can take a look at some of AVAX’s operating efficiency ratios such as ROA here.
Does AVAX’s liquid assets cover its short-term commitments?
With current liabilities at €679.14M, it seems that the business has been able to meet these commitments with a current assets level of €764.19M, leading to a 1.13x current account ratio. Generally, for Construction companies, this is a reasonable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Does AVAX face the risk of succumbing to its debt-load?
With total debt exceeding equities, AVAX is considered a highly levered company. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. Though, since AVAX is currently loss-making, sustainability of its current state of operations becomes a concern. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.Next Steps:
AVAX’s debt and cash flow levels indicate room for improvement. Its cash flow coverage of less than a quarter of debt means that operating efficiency could be an issue. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. Keep in mind I haven’t considered other factors such as how AVAX has been performing in the past. You should continue to research J&P-Avax to get a better picture of the stock by looking at:
- 1. Valuation: What is AVAX worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether AVAX is currently mispriced by the market.
- 2. Historical Performance: What has AVAX’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.
- 3. 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.