Is Truett-Hurst Inc’s (NASDAQ:THST) Balance Sheet Strong Enough To Weather A Storm?

Truett-Hurst Inc (NASDAQ:THST) is a small-cap stock with a market capitalization of US$9.43m. While investors primarily focus on the growth potential and competitive landscape of the small-cap companies, they end up ignoring a key aspect, which could be the biggest threat to its existence: its financial health. Why is it important? Given that THST is not presently profitable, it’s crucial to understand the current state of its operations and pathway to profitability. Here are few basic financial health checks you should consider before taking the plunge. Though, since I only look at basic financial figures, I’d encourage you to dig deeper yourself into THST here.

Does THST produce enough cash relative to debt?

THST’s debt levels surged from US$7.93m to US$12.48m over the last 12 months , which is made up of current and long term debt. With this increase in debt, the current cash and short-term investment levels stands at US$392.00k , ready to deploy into the business. Moving onto cash from operations, its operating cash flow is not yet significant enough to calculate a meaningful cash-to-debt ratio, indicating that operational efficiency is something we’d need to take a look at. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can examine some of THST’s operating efficiency ratios such as ROA here.

Can THST pay its short-term liabilities?

At the current liabilities level of US$14.51m liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.72x. Usually, for Beverage 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.

NasdaqCM:THST Historical Debt August 1st 18
NasdaqCM:THST Historical Debt August 1st 18

Can THST service its debt comfortably?

With a debt-to-equity ratio of 84.16%, THST can be considered as an above-average leveraged company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. But since THST is currently 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:

THST’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. However, the company will be able to pay all of its upcoming liabilities from its current short-term assets. Keep in mind I haven’t considered other factors such as how THST has been performing in the past. I suggest you continue to research Truett-Hurst to get a more holistic view of the stock by looking at:

  1. Historical Performance: What has THST’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
  2. 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 editorial-team@simplywallst.com.