SeaBird Exploration Plc (OB:SBX) is a small-cap stock with a market capitalization of US$438.64m. While investors primarily focus on the growth potential and competitive landscape of the small-cap companies, they end up ignoring a key aspect, which could be the biggest threat to its existence: its financial health. Why is it important? Energy Services companies, in particular ones that run negative earnings, tend to be high risk. Assessing first and foremost the financial health is vital. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Though, this commentary is still very high-level, so I’d encourage you to dig deeper yourself into SBX here.
How much cash does SBX generate through its operations?
SBX’s debt levels have fallen from US$31.08m to US$4.39m over the last 12 months , which is made up of current and long term debt. With this debt repayment, SBX’s cash and short-term investments stands at US$3.17m , ready to deploy into the business. Moving onto cash from operations, its operating cash flow is not yet significant enough to calculate a meaningful cash-to-debt ratio, indicating that operational efficiency is something we’d need to take a look at. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can take a look at some of SBX’s operating efficiency ratios such as ROA here.
Can SBX pay its short-term liabilities?
At the current liabilities level of US$16.50m liabilities, it seems that the business has not maintained a sufficient level of current assets to meet its obligations, with the current ratio last standing at 0.66x, which is below the prudent industry ratio of 3x.
Is SBX’s debt level acceptable?With debt at 29.86% of equity, SBX may be thought of as appropriately levered. This range is considered safe as SBX is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. SBX’s risk around capital structure is low, and the company has the headroom and ability to raise debt should it need to in the future.
SBX’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. In addition to this, its lack of liquidity raises questions over current asset management practices for the small-cap. I admit this is a fairly basic analysis for SBX’s financial health. Other important fundamentals need to be considered alongside. You should continue to research SeaBird Exploration to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for SBX’s future growth? Take a look at our free research report of analyst consensus for SBX’s outlook.
- Valuation: What is SBX 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 SBX 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.