Want to participate in a short research study? Help shape the future of investing tools and you could win a $250 gift card!
While small-cap stocks, such as Sunworks, Inc. (NASDAQ:SUNW) with its market cap of US$11m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Since SUNW is loss-making right now, it’s essential to evaluate the current state of its operations and pathway to profitability. Here are few basic financial health checks you should consider before taking the plunge. However, since I only look at basic financial figures, I’d encourage you to dig deeper yourself into SUNW here.
How does SUNW’s operating cash flow stack up against its debt?
Over the past year, SUNW has ramped up its debt from US$2.2m to US$5.1m , which includes long-term debt. With this growth in debt, SUNW’s cash and short-term investments stands at US$3.6m , ready to deploy into the business. Moving onto cash from operations, its operating cash flow is not yet significant enough to calculate a meaningful cash-to-debt ratio, indicating that operational efficiency is something we’d need to take a look at. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can take a look at some of SUNW’s operating efficiency ratios such as ROA here.
Does SUNW’s liquid assets cover its short-term commitments?
Looking at SUNW’s US$19m in current liabilities, it appears that the company has been able to meet these commitments with a current assets level of US$23m, leading to a 1.19x current account ratio. Generally, for Electrical companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too much capital in low return investments.
Can SUNW service its debt comfortably?
SUNW is a relatively highly levered company with a debt-to-equity of 43%. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. Though, since SUNW is presently unprofitable, there’s a question of sustainability of its current operations. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
SUNW’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. Since there is also no concerns around SUNW’s liquidity needs, this may be its optimal capital structure for the time being. I admit this is a fairly basic analysis for SUNW’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Sunworks to get a more holistic view of the small-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for SUNW’s future growth? Take a look at our free research report of analyst consensus for SUNW’s outlook.
- Valuation: What is SUNW worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether SUNW is currently mispriced by the market.
- 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.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at email@example.com.