Is Place Holdings (SGX:E27) A Risky Investment?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We can see that The Place Holdings Limited (SGX:E27) does use debt in its business. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Place Holdings

What Is Place Holdings's Debt?

You can click the graphic below for the historical numbers, but it shows that as of December 2020 Place Holdings had S$16.7m of debt, an increase on S$5.80m, over one year. However, its balance sheet shows it holds S$73.2m in cash, so it actually has S$56.5m net cash.

A Look At Place Holdings' Liabilities

The latest balance sheet data shows that Place Holdings had liabilities of S$24.3m due within a year, and liabilities of S$366.0k falling due after that. On the other hand, it had cash of S$73.2m and S$4.17m worth of receivables due within a year. So it actually has S$52.6m more liquid assets than total liabilities.

This surplus suggests that Place Holdings has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that Place Holdings has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But it is Place Holdings's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

In the last year Place Holdings had a loss before interest and tax, and actually shrunk its revenue by 51%, to S$1.1m. That makes us nervous, to say the least.

So How Risky Is Place Holdings?

While Place Holdings lost money on an earnings before interest and tax (EBIT) level, it actually booked a paper profit of S$686k. So when you consider it has net cash, along with the statutory profit, the stock probably isn't as risky as it might seem, at least in the short term. We'll feel more comfortable with the stock once EBIT is positive, given the lacklustre revenue growth. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For example Place Holdings has 4 warning signs (and 3 which don't sit too well with us) we think you should know about.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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