Orbital Energy Group (NASDAQ:OEG) Has Debt But No Earnings; Should You Worry?

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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. As with many other companies Orbital Energy Group, Inc. (NASDAQ:OEG) makes use of debt. But the real question is whether this debt is making the company risky.

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 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for Orbital Energy Group

What Is Orbital Energy Group's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2021 Orbital Energy Group had US$25.6m of debt, an increase on US$966.0k, over one year. However, it does have US$34.7m in cash offsetting this, leading to net cash of US$9.18m.

How Strong Is Orbital Energy Group's Balance Sheet?

According to the last reported balance sheet, Orbital Energy Group had liabilities of US$32.0m due within 12 months, and liabilities of US$18.8m due beyond 12 months. Offsetting this, it had US$34.7m in cash and US$11.6m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$4.55m.

Of course, Orbital Energy Group has a market capitalization of US$206.3m, so these liabilities are probably manageable. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. While it does have liabilities worth noting, Orbital Energy Group also has more cash than debt, so we're pretty confident it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Orbital Energy Group 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.

In the last year Orbital Energy Group wasn't profitable at an EBIT level, but managed to grow its revenue by 78%, to US$42m. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is Orbital Energy Group?

Statistically speaking companies that lose money are riskier than those that make money. And in the last year Orbital Energy Group had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through US$25m of cash and made a loss of US$41m. With only US$9.18m on the balance sheet, it would appear that its going to need to raise capital again soon. With very solid revenue growth in the last year, Orbital Energy Group may be on a path to profitability. Pre-profit companies are often risky, but they can also offer great rewards. 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, we've discovered 3 warning signs for Orbital Energy Group (1 can't be ignored!) that you should be aware of before investing here.

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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