Investors are always looking for growth in small-cap stocks like Civeo Corporation (NYSE:CVEO), with a market cap of US$700.99m. However, an important fact which most ignore is: how financially healthy is the business? Since CVEO is loss-making right now, it’s crucial 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. However, this commentary is still very high-level, so I’d encourage you to dig deeper yourself into CVEO here.
Does CVEO produce enough cash relative to debt?
CVEO has sustained its debt level by about US$318.39m over the last 12 months – this includes both the current and long-term debt. At this current level of debt, the current cash and short-term investment levels stands at US$41.98m for investing into the business. Additionally, CVEO has generated US$49.82m in operating cash flow in the last twelve months, resulting in an operating cash to total debt ratio of 15.65%, signalling that CVEO’s current level of operating cash is not high enough to cover debt. This ratio can also be interpreted as a measure of efficiency for loss making businesses as traditional metrics such as return on asset (ROA) requires a positive net income. In CVEO’s case, it is able to generate 0.16x cash from its debt capital.
Can CVEO pay its short-term liabilities?
Looking at CVEO’s most recent US$60.51m liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.14x. For Commercial Services companies, this ratio is within a sensible range since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Is CVEO’s debt level acceptable?CVEO is a relatively highly levered company with a debt-to-equity of 75.88%. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. Though, since CVEO is presently unprofitable, sustainability of its current state of operations becomes a concern. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
At its current level of cash flow coverage, CVEO has room for improvement to better cushion for events which may require debt repayment. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. I admit this is a fairly basic analysis for CVEO’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Civeo to get a more holistic view of the stock by looking at:
- 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.
- 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.
- 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.
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