How Financially Strong Is U.S. Silica Holdings, Inc. (NYSE:SLCA)?

Investors are always looking for growth in small-cap stocks like U.S. Silica Holdings, Inc. (NYSE:SLCA), with a market cap of US$1.2b. However, an important fact which most ignore is: how financially healthy is the business? Since SLCA is loss-making right now, it’s essential to evaluate the current state of its operations and pathway to profitability. Let’s work through some financial health checks you may wish to consider if you’re interested in this stock. However, this is not a comprehensive overview, so I recommend you dig deeper yourself into SLCA here.

SLCA’s Debt (And Cash Flows)

SLCA’s debt levels surged from US$513m to US$1.3b over the last 12 months , which accounts for long term debt. With this rise in debt, SLCA’s cash and short-term investments stands at US$202m to keep the business going. Moreover, SLCA has generated cash from operations of US$311m in the last twelve months, leading to an operating cash to total debt ratio of 25%, signalling that SLCA’s current level of operating cash is high enough to cover debt.

Does SLCA’s liquid assets cover its short-term commitments?

At the current liabilities level of US$261m, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.3x. The current ratio is the number you get when you divide current assets by current liabilities. Generally, for Energy Services companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too much capital in low return investments.

NYSE:SLCA Historical Debt, April 4th 2019
NYSE:SLCA Historical Debt, April 4th 2019

Can SLCA service its debt comfortably?

Since total debt levels exceed equity, SLCA is a highly leveraged company. This is somewhat unusual for small-caps companies, since lenders are often hesitant to provide attractive interest rates to less-established businesses. Though, since SLCA is presently loss-making, there’s a question of sustainability of its current operations. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.

Next Steps:

Although SLCA’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. Since there is also no concerns around SLCA’s liquidity needs, this may be its optimal capital structure for the time being. Keep in mind I haven’t considered other factors such as how SLCA has been performing in the past. I suggest you continue to research U.S. Silica Holdings to get a better picture of the small-cap by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for SLCA’s future growth? Take a look at our free research report of analyst consensus for SLCA’s outlook.
  2. Valuation: What is SLCA 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 SLCA is currently mispriced by the market.
  3. 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.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.