We Think Alphatec Holdings (NASDAQ:ATEC) Has A Fair Chunk Of Debt

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We note that Alphatec Holdings, Inc. (NASDAQ:ATEC) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Alphatec Holdings

What Is Alphatec Holdings's Debt?

The image below, which you can click on for greater detail, shows that at June 2024 Alphatec Holdings had debt of US$519.2m, up from US$457.5m in one year. However, because it has a cash reserve of US$99.8m, its net debt is less, at about US$419.3m.

How Healthy Is Alphatec Holdings' Balance Sheet?

According to the last reported balance sheet, Alphatec Holdings had liabilities of US$169.5m due within 12 months, and liabilities of US$558.4m due beyond 12 months. Offsetting these obligations, it had cash of US$99.8m as well as receivables valued at US$86.3m due within 12 months. So its liabilities total US$541.8m more than the combination of its cash and short-term receivables.

This deficit is considerable relative to its market capitalization of US$834.3m, so it does suggest shareholders should keep an eye on Alphatec Holdings' use of debt. This suggests shareholders would be heavily diluted if the company needed to shore up its balance sheet in a hurry. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Alphatec Holdings 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 Alphatec Holdings wasn't profitable at an EBIT level, but managed to grow its revenue by 28%, to US$540m. Shareholders probably have their fingers crossed that it can grow its way to profits.

Caveat Emptor

Despite the top line growth, Alphatec Holdings still had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost a very considerable US$142m at the EBIT level. 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$211m in negative free cash flow over the last twelve months. So suffice it to say we consider the stock very risky. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For example - Alphatec Holdings has 3 warning signs we think 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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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.