Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as PDC Energy Inc (NASDAQ:PDCE) with a market-capitalization of US$3.93b, rarely draw their attention. While they are less talked about as an investment category, mid-cap risk-adjusted returns have generally been better than more commonly focused stocks that fall into the small- or large-cap categories. Today we will look at PDCE’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. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into PDCE here. View out our latest analysis for PDC Energy
Does PDCE produce enough cash relative to debt?
Over the past year, PDCE has ramped up its debt from US$1.04b to US$1.16b , which comprises of short- and long-term debt. With this rise in debt, PDCE’s cash and short-term investments stands at US$180.68m , ready to deploy into the business. Additionally, PDCE has produced cash from operations of US$588.56m in the last twelve months, resulting in an operating cash to total debt ratio of 50.90%, meaning that PDCE’s current level of operating cash is high enough to cover debt. This ratio can also be interpreted as a measure of efficiency for loss making companies as traditional metrics such as return on asset (ROA) requires a positive net income. In PDCE’s case, it is able to generate 0.51x cash from its debt capital.
Can PDCE pay its short-term liabilities?
With current liabilities at US$417.64m, it appears that the company has not maintained a sufficient level of current assets to meet its obligations, with the current ratio last standing at 0.96x, which is below the prudent industry ratio of 3x.
Can PDCE service its debt comfortably?
PDCE is a relatively highly levered company with a debt-to-equity of 46.40%. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses. But since PDCE is presently loss-making, 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.
PDCE’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. But, its lack of liquidity raises questions over current asset management practices for the mid-cap. Keep in mind I haven’t considered other factors such as how PDCE has been performing in the past. I suggest you continue to research PDC Energy to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for PDCE’s future growth? Take a look at our free research report of analyst consensus for PDCE’s outlook.
- Valuation: What is PDCE 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 PDCE 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.