Investors are always looking for growth in small-cap stocks like Conformis Inc (NASDAQ:CFMS), with a market cap of US$56.86m. However, an important fact which most ignore is: how financially healthy is the business? Medical Equipment companies, especially ones that are currently loss-making, tend to be high risk. Assessing first and foremost the financial health is vital. Here are few basic financial health checks you should consider before taking the plunge. Nevertheless, given that I have not delve into the company-specifics, I suggest you dig deeper yourself into CFMS here.
How much cash does CFMS generate through its operations?
Over the past year, CFMS has maintained its debt levels at around US$29.72m made up of current and long term debt. At this current level of debt, CFMS currently has US$46.58m remaining in cash and short-term investments for investing into the business. Moving onto cash from operations, its small level of operating cash flow means calculating cash-to-debt wouldn’t be too useful, though these low levels of cash means that operational efficiency is worth a look. 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 CFMS’s operating efficiency ratios such as ROA here.
Does CFMS’s liquid assets cover its short-term commitments?
At the current liabilities level of US$14.67m liabilities, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 4.76x. However, anything above 3x is considered high and could mean that CFMS has too much idle capital in low-earning investments.
Is CFMS’s debt level acceptable?
With debt reaching 60.45% of equity, CFMS may be thought of as relatively highly levered. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. However, since CFMS is currently unprofitable, there’s a question of sustainability of its current operations. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.Next Steps:
CFMS’s debt and cash flow levels indicate room for improvement. Its cash flow coverage of less than a quarter of debt means that operating efficiency could be an issue. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. I admit this is a fairly basic analysis for CFMS’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Conformis to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for CFMS’s future growth? Take a look at our free research report of analyst consensus for CFMS’s outlook.
- Historical Performance: What has CFMS’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.
- 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.