Perma-Pipe International Holdings Inc (NASDAQ:PPIH) is a small-cap stock with a market capitalization of US$67.10M. 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? Since PPIH is loss-making right now, it’s crucial to assess the current state of its operations and pathway to profitability. Here are few basic financial health checks you should consider before taking the plunge. Nevertheless, I know these factors are very high-level, so I recommend you dig deeper yourself into PPIH here.
Does PPIH generate enough cash through operations?
PPIH has shrunken its total debt levels in the last twelve months, from US$15.47M to US$11.73M , which is made up of current and long term debt. With this debt payback, PPIH’s cash and short-term investments stands at US$7.60M , ready to deploy into the business. Moving onto cash from operations, its trivial cash flows from operations make the cash-to-debt ratio less useful to us, though these low levels of cash means that operational efficiency is worth a look. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can examine some of PPIH’s operating efficiency ratios such as ROA here.
Can PPIH meet its short-term obligations with the cash in hand?
At the current liabilities level of US$30.05M liabilities, it seems that the business has been able to meet these obligations given the level of current assets of US$57.82M, with a current ratio of 1.92x. Generally, for Machinery companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too capital in low return investments.
Is PPIH’s debt level acceptable?PPIH’s level of debt is appropriate relative to its total equity, at 34.12%. This range is considered safe as PPIH is not taking on too much debt obligation, which may be constraining for future growth. Investors’ risk associated with debt is very low with PPIH, and the company has plenty of headroom and ability to raise debt should it need to in the future.
PPIH’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. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. This is only a rough assessment of financial health, and I’m sure PPIH has company-specific issues impacting its capital structure decisions. I suggest you continue to research Perma-Pipe International Holdings to get a better picture of the stock by looking at:
- 1. Historical Performance: What has PPIH’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
- 2. 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.