Is iRhythm Technologies (NASDAQ:IRTC) A Risky Investment?

By
Simply Wall St
Published
April 14, 2022
NasdaqGS:IRTC
Source: Shutterstock

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. We note that iRhythm Technologies, Inc. (NASDAQ:IRTC) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

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. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for iRhythm Technologies

What Is iRhythm Technologies's Net Debt?

You can click the graphic below for the historical numbers, but it shows that iRhythm Technologies had US$21.4m of debt in December 2021, down from US$33.0m, one year before. But it also has US$239.1m in cash to offset that, meaning it has US$217.8m net cash.

debt-equity-history-analysis
NasdaqGS:IRTC Debt to Equity History April 14th 2022

How Healthy Is iRhythm Technologies' Balance Sheet?

We can see from the most recent balance sheet that iRhythm Technologies had liabilities of US$87.9m falling due within a year, and liabilities of US$95.6m due beyond that. Offsetting these obligations, it had cash of US$239.1m as well as receivables valued at US$46.4m due within 12 months. So it actually has US$102.1m more liquid assets than total liabilities.

This surplus suggests that iRhythm Technologies has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, iRhythm Technologies boasts net cash, so it's fair to say it does not have a heavy debt load! 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 iRhythm Technologies can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

In the last year iRhythm Technologies wasn't profitable at an EBIT level, but managed to grow its revenue by 22%, to US$323m. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is iRhythm Technologies?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months iRhythm Technologies lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through US$66m of cash and made a loss of US$101m. But at least it has US$217.8m on the balance sheet to spend on growth, near-term. With very solid revenue growth in the last year, iRhythm Technologies may be on a path to profitability. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 3 warning signs for iRhythm Technologies that you should be aware of before investing here.

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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