Neuronetics (NASDAQ:STIM) Has Debt But No Earnings; Should You Worry?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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 Neuronetics, Inc. (NASDAQ:STIM) does have debt on its balance sheet. But is this debt a concern to shareholders?

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. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Neuronetics

How Much Debt Does Neuronetics Carry?

The image below, which you can click on for greater detail, shows that at December 2023 Neuronetics had debt of US$59.3m, up from US$36.0m in one year. However, its balance sheet shows it holds US$59.7m in cash, so it actually has US$394.0k net cash.

How Healthy Is Neuronetics' Balance Sheet?

The latest balance sheet data shows that Neuronetics had liabilities of US$19.8m due within a year, and liabilities of US$61.8m falling due after that. On the other hand, it had cash of US$59.7m and US$21.6m worth of receivables due within a year. So these liquid assets roughly match the total liabilities.

This state of affairs indicates that Neuronetics' balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the US$101.0m company is short on cash, but still worth keeping an eye on the balance sheet. While it does have liabilities worth noting, Neuronetics also has more cash than debt, so we're pretty confident it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Neuronetics 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 Neuronetics wasn't profitable at an EBIT level, but managed to grow its revenue by 9.4%, to US$71m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is Neuronetics?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And the fact is that over the last twelve months Neuronetics lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through US$34m of cash and made a loss of US$30m. However, it has net cash of US$394.0k, so it has a bit of time before it will need more capital. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. To that end, you should be aware of the 4 warning signs we've spotted with Neuronetics .

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.