Investors are always looking for growth in small-cap stocks like Caleffi Sp.A. (BIT:CLF), with a market cap of €22.39M. However, an important fact which most ignore is: how financially healthy is the business? Since CLF is loss-making right now, it’s essential to assess the current state of its operations and pathway to profitability. I believe these basic checks tell most of the story you need to know. Though, given that I have not delve into the company-specifics, I recommend you dig deeper yourself into CLF here.
Does CLF generate enough cash through operations?
CLF’s debt levels have fallen from €15.22M to €8.21M over the last 12 months – this includes both the current and long-term debt. With this reduction in debt, CLF’s cash and short-term investments stands at €2.56M for investing 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 assess some of CLF’s operating efficiency ratios such as ROA here.
Does CLF’s liquid assets cover its short-term commitments?
Looking at CLF’s most recent €23.74M liabilities, it seems that the business has been able to meet these commitments with a current assets level of €39.27M, leading to a 1.65x current account ratio. Usually, for Luxury companies, this is a suitable ratio as there’s enough of a cash buffer without holding too capital in low return investments.
Does CLF face the risk of succumbing to its debt-load?
CLF is a relatively highly levered company with a debt-to-equity of 55.25%. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. Though, since CLF is currently loss-making, there’s a question of sustainability of its current operations. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.Next Steps:
CLF’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 proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I’m sure CLF has company-specific issues impacting its capital structure decisions. I suggest you continue to research Caleffi to get a better picture of the stock by looking at:
- 1. Valuation: What is CLF 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 CLF is currently mispriced by the market.
- 2. Historical Performance: What has CLF’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.