Civeo Corporation (NYSE:CVEO) is a small-cap stock with a market capitalization of $404.71M. 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? Given that CVEO is not presently profitable, 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, this commentary is still very high-level, so I suggest you dig deeper yourself into CVEO here.
Does CVEO generate an acceptable amount of cash through operations?
CVEO’s debt levels have fallen from $396.9M to $353.3M over the last 12 months , which is made up of current and long term debt. With this debt payback, CVEO currently has $1.8M remaining in cash and short-term investments for investing into the business. Additionally, CVEO has produced cash from operations of $62.1M during the same period of time, resulting in an operating cash to total debt ratio of 17.58%, meaning that CVEO’s debt is not appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency for unprofitable companies as traditional metrics such as return on asset (ROA) requires a positive net income. In CVEO’s case, it is able to generate 0.18x cash from its debt capital.
Can CVEO meet its short-term obligations with the cash in hand?
With current liabilities at $60.4M, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.37x. For Commercial Services companies, this ratio is within a sensible range as there’s enough of a cash buffer without holding too capital in low return investments.
Is CVEO’s debt level acceptable?
With debt reaching 61.65% of equity, CVEO may be thought of as relatively highly levered. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. However, since CVEO is currently loss-making, 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.Next Steps:
CVEO’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. Keep in mind I haven’t considered other factors such as how CVEO has been performing in the past. I recommend you continue to research Civeo to get a better picture of the stock by looking at:
1. Future Outlook: What are well-informed industry analysts predicting for CVEO’s future growth? Take a look at our free research report of analyst consensus for CVEO’s outlook.
2. Valuation: What is CVEO 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 CVEO is currently mispriced by the market.
3. 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.