Investors are always looking for growth in small-cap stocks like Perma-Pipe International Holdings Inc (NASDAQ:PPIH), with a market cap of US$72.62m. However, an important fact which most ignore is: how financially healthy is the business? Since PPIH is loss-making right now, it’s vital to assess the current state of its operations and pathway to profitability. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Though, this commentary is still very high-level, so I’d encourage you to dig deeper yourself into PPIH here.
How much cash does PPIH generate through its operations?
PPIH’s debt levels surged from US$11.73m to US$15.75m over the last 12 months , which comprises of short- and long-term debt. With this increase in debt, PPIH currently has US$7.08m remaining in cash and short-term investments , ready to deploy into the business. Moving onto cash from operations, its small level of operating cash flow means calculating cash-to-debt wouldn’t be too useful, though these low levels of cash means that operational efficiency is worth a look. For this article’s sake, I won’t be looking at this today, but you can assess some of PPIH’s operating efficiency ratios such as ROA here.
Does PPIH’s liquid assets cover its short-term commitments?
At the current liabilities level of US$39.18m liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.59x. For Machinery companies, this ratio is within a sensible range since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Is PPIH’s debt level acceptable?PPIH’s level of debt is appropriate relative to its total equity, at 36.72%. PPIH is not taking on too much debt commitment, which may be constraining for future growth. Risk around debt is very low for PPIH, and the company also has the ability and headroom to increase debt if needed going forward.
Although PPIH’s debt level is relatively low, its cash flow levels still could not copiously cover its borrowings. This may indicate room for improvement in terms of its operating efficiency. However, the company exhibits proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I’m sure PPIH has company-specific issues impacting its capital structure decisions. You should continue to research Perma-Pipe International Holdings to get a more holistic view of the stock by looking at:
- 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.
- 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.