Investors are always looking for growth in small-cap stocks like Martin Midstream Partners LP. (NASDAQ:MMLP), with a market cap of US$526.43M. However, an important fact which most ignore is: how financially healthy is the business? Companies operating in the Oil and Gas industry, even ones that are profitable, are more likely to be higher risk. Evaluating financial health as part of your investment thesis is vital. I believe these basic checks tell most of the story you need to know. However, given that I have not delve into the company-specifics, I’d encourage you to dig deeper yourself into MMLP here.
Does MMLP generate an acceptable amount of cash through operations?
MMLP’s debt level has been constant at around US$812.63M over the previous year comprising of short- and long-term debt. At this stable level of debt, the current cash and short-term investment levels stands at US$27.00K for investing into the business. Moreover, MMLP has produced cash from operations of US$67.51M in the last twelve months, resulting in an operating cash to total debt ratio of 8.31%, meaning that MMLP’s debt is not appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In MMLP’s case, it is able to generate 0.083x cash from its debt capital.
Can MMLP pay its short-term liabilities?
At the current liabilities level of US$134.41M liabilities, it appears that the company has been able to meet these commitments with a current assets level of US$242.66M, leading to a 1.81x current account ratio. Usually, for Oil and Gas companies, this is a suitable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Can MMLP service its debt comfortably?With total debt exceeding equities, MMLP is considered a highly levered company. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. No matter how high the company’s debt, if it can easily cover the interest payments, it’s considered to be efficient with its use of excess leverage. A company generating earnings after interest and tax at least three times its net interest payments is considered financially sound. In MMLP’s case, the ratio of 1.28x suggests that interest is not strongly covered, which means that debtors may be less inclined to loan the company more money, reducing its headroom for growth through debt.
MMLP’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. Though, 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 MMLP has been performing in the past. I suggest you continue to research Martin Midstream Partners to get a more holistic view of the stock by looking at the areas below. Just a heads up – to access some parts of the Simply Wall St research tool you might be asked to create a free account, but it takes just one click and the information they provide is definitely worth it in my opinion.
- 1. Future Outlook: What are well-informed industry analysts predicting for MMLP’s future growth? Take a look at this free research report of analyst consensus for MMLP’s outlook.
- 2. Valuation: What is MMLP worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in this free research report helps visualize whether MMLP is currently mispriced by the market.
- 3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore a free list of these great stocks here.