Is Orion Energy Systems (NASDAQ:OESX) Using Too Much Debt?

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 note that Orion Energy Systems, Inc. (NASDAQ:OESX) does have debt on its balance sheet. But is this debt a concern to shareholders?

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Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

What Is Orion Energy Systems's Net Debt?

You can click the graphic below for the historical numbers, but it shows that Orion Energy Systems had US$8.49m of debt in June 2025, down from US$13.5m, one year before. However, because it has a cash reserve of US$3.56m, its net debt is less, at about US$4.92m.

How Strong Is Orion Energy Systems' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Orion Energy Systems had liabilities of US$26.6m due within 12 months and liabilities of US$11.7m due beyond that. Offsetting these obligations, it had cash of US$3.56m as well as receivables valued at US$17.0m due within 12 months. So its liabilities total US$17.6m more than the combination of its cash and short-term receivables.

This deficit is considerable relative to its market capitalization of US$19.2m, so it does suggest shareholders should keep an eye on Orion Energy Systems' use of debt. 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 it is future earnings, more than anything, that will determine Orion Energy Systems's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

See our latest analysis for Orion Energy Systems

Over 12 months, Orion Energy Systems made a loss at the EBIT level, and saw its revenue drop to US$79m, which is a fall of 15%. We would much prefer see growth.

Caveat Emptor

Not only did Orion Energy Systems's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Its EBIT loss was a whopping US$7.1m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. We would feel better if it turned its trailing twelve month loss of US$9.3m into a profit. So in short it's a really risky stock. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 1 warning sign for Orion Energy Systems that you should be aware of before investing here.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.