Has Meituan Dianping (HKG:3690) Got Enough Cash?

With a market capitalization of HK$282b, Meituan Dianping (HKG:3690) is a large-cap stock, which is considered by most investors as a safe bet. Common characteristics for these big stocks are their strong balance sheet and high liquidity, which means there’s plenty of stocks available to the public for trading. These firms won’t be left high and dry if liquidity dries up, and they will be relatively unaffected by rises in interest rates. Assessing the most recent data for 3690, I will take you through the key ratios to measure financial health, in particular, its solvency and liquidity.

See our latest analysis for Meituan Dianping

3690’s Debt (And Cash Flows)

3690 has shrunk its total debt levels in the last twelve months, from CN¥102b to CN¥2.3b – this includes long-term debt. With this debt repayment, the current cash and short-term investment levels stands at CN¥59b to keep the business going. Moving on, operating cash flow was negative over the last twelve months. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can examine some of 3690’s operating efficiency ratios such as ROA here.

Does 3690’s liquid assets cover its short-term commitments?

Looking at 3690’s CN¥32b in current liabilities, it appears that the company has been able to meet these commitments with a current assets level of CN¥73b, leading to a 2.3x current account ratio. The current ratio is the number you get when you divide current assets by current liabilities. Generally, for Online Retail companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too much capital in low return investments.

SEHK:3690 Historical Debt, March 15th 2019
SEHK:3690 Historical Debt, March 15th 2019

Does 3690 face the risk of succumbing to its debt-load?

What is considered a high debt-to-equity ratio differs depending on the industry, because some industries tend to utilize more debt financing than others. As a rule of thumb, a financially healthy large-cap should have a ratio less than 40%. 3690’s level of debt is low relative to its total equity, at 2.6%. 3690 is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. Risk around debt is extremely low for 3690, and the company also has the ability and headroom to increase debt if needed going forward.

Next Steps:

3690’s low debt is also met with low coverage. This indicates room for improvement as its cash flow covers less than a quarter of its borrowings, which means its operating efficiency could be better. However, the company exhibits proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I’m sure 3690 has company-specific issues impacting its capital structure decisions. I recommend you continue to research Meituan Dianping to get a more holistic view of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for 3690’s future growth? Take a look at our free research report of analyst consensus for 3690’s outlook.
  2. Valuation: What is 3690 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 3690 is currently mispriced by the market.
  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.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.