Is NeoGenomics (NASDAQ:NEO) A Risky Investment?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. As with many other companies NeoGenomics, Inc. (NASDAQ:NEO) makes use of debt. But should shareholders be worried about its use of debt?

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for NeoGenomics

What Is NeoGenomics's Net Debt?

The chart below, which you can click on for greater detail, shows that NeoGenomics had US$538.9m in debt in March 2024; about the same as the year before. However, it does have US$384.8m in cash offsetting this, leading to net debt of about US$154.1m.

How Healthy Is NeoGenomics' Balance Sheet?

We can see from the most recent balance sheet that NeoGenomics had liabilities of US$76.7m falling due within a year, and liabilities of US$640.2m due beyond that. Offsetting these obligations, it had cash of US$384.8m as well as receivables valued at US$142.1m due within 12 months. So its liabilities total US$190.0m more than the combination of its cash and short-term receivables.

Since publicly traded NeoGenomics shares are worth a total of US$1.89b, it seems unlikely that this level of liabilities would be a major threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine NeoGenomics's ability to maintain a healthy balance sheet going forward. 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 NeoGenomics wasn't profitable at an EBIT level, but managed to grow its revenue by 15%, to US$611m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

Caveat Emptor

Importantly, NeoGenomics had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at US$94m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through US$40m of cash over the last year. So to be blunt we think it is 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. We've identified 1 warning sign with NeoGenomics , and understanding them should be part of your investment process.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com