Mid-caps stocks, like Chegg Inc (NYSE:CHGG) with a market capitalization of US$3.03b, aren’t the focus of most investors who prefer to direct their investments towards either large-cap or small-cap stocks. However, generally ignored mid-caps have historically delivered better risk-adjusted returns than the two other categories of stocks. Today we will look at CHGG’s financial liquidity and debt levels, which are strong indicators for whether the company can weather economic downturns or fund strategic acquisitions for future growth. Don’t forget that this is a general and concentrated examination of Chegg’s financial health, so you should conduct further analysis into CHGG here. View out our latest analysis for Chegg
Does CHGG face the risk of succumbing to its debt-load?
Debt-to-equity ratio standards differ between industries, as some are more capital-intensive than others, meaning they need more capital to carry out core operations. A ratio below 40% for mid-cap stocks is considered as financially healthy, as a rule of thumb. For CHGG, the debt-to-equity ratio is zero, meaning that the company has no debt. This means it has been running its business utilising funding from only its equity capital, which is rather impressive. Investors’ risk associated with debt is virtually non-existent with CHGG, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Can CHGG meet its short-term obligations with the cash in hand?
Since Chegg doesn’t have any debt on its balance sheet, it doesn’t have any solvency issues, which is a term used to describe the company’s ability to meet its long-term obligations. However, another measure of financial health is its short-term obligations, which is known as liquidity. These include payments to suppliers, employees and other stakeholders. With current liabilities at US$51.56m, it seems that the business has been able to meet these obligations given the level of current assets of US$228.94m, with a current ratio of 4.44x. Though, a ratio greater than 3x may be considered as too high, as CHGG could be holding too much capital in a low-return investment environment.
CHGG has zero-debt as well as ample cash to cover its near-term commitments. Its safe operations reduces risk for the company and its investors, but some level of debt could also boost earnings growth and operational efficiency. Keep in mind I haven’t considered other factors such as how CHGG has performed in the past. You should continue to research Chegg to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for CHGG’s future growth? Take a look at our free research report of analyst consensus for CHGG’s outlook.
- Valuation: What is CHGG 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 CHGG 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.