Investors are always looking for growth in small-cap stocks like Smart Sand, Inc. (NASDAQ:SND), with a market cap of US$85m. However, an important fact which most ignore is: how financially healthy is the business? Companies operating in the Energy Services industry, even ones that are profitable, are more likely to be higher risk. Assessing first and foremost the financial health is essential. Here are few basic financial health checks you should consider before taking the plunge. Though, this commentary is still very high-level, so I suggest you dig deeper yourself into SND here.
How does SND’s operating cash flow stack up against its debt?
SND’s debt levels surged from US$937k to US$44m over the last 12 months , which accounts for long term debt. With this increase in debt, the current cash and short-term investment levels stands at US$1.2m for investing into the business. On top of this, SND has produced cash from operations of US$41m in the last twelve months, leading to an operating cash to total debt ratio of 92%, indicating that SND’s operating cash is sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In SND’s case, it is able to generate 0.92x cash from its debt capital.
Can SND pay its short-term liabilities?
At the current liabilities level of US$31m, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.71x. Usually, for Energy Services companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Is SND’s debt level acceptable?
With a debt-to-equity ratio of 21%, SND’s debt level may be seen as prudent. This range is considered safe as SND is not taking on too much debt obligation, which may be constraining for future growth. We can check to see whether SND is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In SND’s, case, the ratio of 22.8x suggests that interest is comfortably covered, which means that lenders may be inclined to lend more money to the company, as it is seen as safe in terms of payback.
SND’s debt level is appropriate for a company its size, and it is also able to generate sufficient cash flow coverage, meaning it has been able to put its debt in good use. Furthermore, the company will be able to pay all of its upcoming liabilities from its current short-term assets. This is only a rough assessment of financial health, and I’m sure SND has company-specific issues impacting its capital structure decisions. You should continue to research Smart Sand to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for SND’s future growth? Take a look at our free research report of analyst consensus for SND’s outlook.
- Valuation: What is SND 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 SND 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.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at email@example.com.