While small-cap stocks, such as Veeko International Holdings Limited (HKG:1173) with its market cap of HK$438m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Companies operating in the Specialty Retail industry facing headwinds from current disruption, even ones that are profitable, tend to be high risk. Evaluating financial health as part of your investment thesis is vital. Here are few basic financial health checks you should consider before taking the plunge. Though, given that I have not delve into the company-specifics, I’d encourage you to dig deeper yourself into 1173 here.
How much cash does 1173 generate through its operations?
1173’s debt levels have fallen from HK$300m to HK$269m over the last 12 months , which is mainly comprised of near term debt. With this reduction in debt, 1173’s cash and short-term investments stands at HK$65m , ready to deploy into the business. On top of this, 1173 has generated HK$32m in operating cash flow during the same period of time, leading to an operating cash to total debt ratio of 12%, indicating that 1173’s debt is not appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In 1173’s case, it is able to generate 0.12x cash from its debt capital.
Can 1173 meet its short-term obligations with the cash in hand?
With current liabilities at HK$372m, the company has been able to meet these obligations given the level of current assets of HK$683m, with a current ratio of 1.84x. Usually, for Specialty Retail companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Is 1173’s debt level acceptable?
With a debt-to-equity ratio of 37%, 1173’s debt level may be seen as prudent. 1173 is not taking on too much debt commitment, which may be constraining for future growth.
1173’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. However, the company exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven’t considered other factors such as how 1173 has been performing in the past. I recommend you continue to research Veeko International Holdings to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for 1173’s future growth? Take a look at our free research report of analyst consensus for 1173’s outlook.
- Valuation: What is 1173 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 1173 is currently mispriced by the market.
- 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.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at email@example.com.