Is NexTier Oilfield Solutions (NYSE:NEX) A Risky Investment?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. As with many other companies NexTier Oilfield Solutions Inc. (NYSE:NEX) makes use of debt. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for NexTier Oilfield Solutions

What Is NexTier Oilfield Solutions's Debt?

As you can see below, NexTier Oilfield Solutions had US$341.3m of debt at March 2021, down from US$521.9m a year prior. However, it does have US$271.6m in cash offsetting this, leading to net debt of about US$69.7m.

How Strong Is NexTier Oilfield Solutions' Balance Sheet?

The latest balance sheet data shows that NexTier Oilfield Solutions had liabilities of US$245.8m due within a year, and liabilities of US$377.9m falling due after that. On the other hand, it had cash of US$271.6m and US$163.5m worth of receivables due within a year. So it has liabilities totalling US$188.5m more than its cash and near-term receivables, combined.

This deficit isn't so bad because NexTier Oilfield Solutions is worth US$769.4m, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if NexTier Oilfield Solutions can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year NexTier Oilfield Solutions had a loss before interest and tax, and actually shrunk its revenue by 60%, to US$803m. To be frank that doesn't bode well.

Caveat Emptor

While NexTier Oilfield Solutions's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Its EBIT loss was a whopping US$277m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled US$105m in negative free cash flow over the last twelve months. So in short it's a really risky stock. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 2 warning signs for NexTier Oilfield Solutions that you should be aware of.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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