Stock Analysis

Would Manitex International (NASDAQ:MNTX) Be Better Off With Less Debt?

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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. As with many other companies Manitex International, Inc. (NASDAQ:MNTX) makes use of debt. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

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How Much Debt Does Manitex International Carry?

The image below, which you can click on for greater detail, shows that Manitex International had debt of US$53.6m at the end of September 2020, a reduction from US$65.4m over a year. However, because it has a cash reserve of US$23.3m, its net debt is less, at about US$30.3m.

NasdaqCM:MNTX Debt to Equity History December 4th 2020

How Strong Is Manitex International's Balance Sheet?

According to the last reported balance sheet, Manitex International had liabilities of US$78.6m due within 12 months, and liabilities of US$33.4m due beyond 12 months. Offsetting these obligations, it had cash of US$23.3m as well as receivables valued at US$30.9m due within 12 months. So its liabilities total US$57.8m more than the combination of its cash and short-term receivables.

This is a mountain of leverage relative to its market capitalization of US$88.1m. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe dilution. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Manitex International can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, Manitex International made a loss at the EBIT level, and saw its revenue drop to US$185m, which is a fall of 17%. We would much prefer see growth.

Caveat Emptor

While Manitex International's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. To be specific the EBIT loss came in at US$1.5m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. For example, we would not want to see a repeat of last year's loss of US$20m. In the meantime, we consider the stock very risky. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. Be aware that Manitex International is showing 1 warning sign in our investment analysis , you should know about...

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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