Would Neuronetics (NASDAQ:STIM) Be Better Off With Less Debt?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We can see that Neuronetics, Inc. (NASDAQ:STIM) does use debt in its business. But should shareholders be worried about its use of debt?

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What Risk Does Debt Bring?

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. 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. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Neuronetics's Debt?

The image below, which you can click on for greater detail, shows that at September 2025 Neuronetics had debt of US$65.7m, up from US$46.0m in one year. However, because it has a cash reserve of US$28.0m, its net debt is less, at about US$37.7m.

How Strong Is Neuronetics' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Neuronetics had liabilities of US$28.9m due within 12 months and liabilities of US$85.2m due beyond that. Offsetting this, it had US$28.0m in cash and US$19.4m in receivables that were due within 12 months. So it has liabilities totalling US$66.8m more than its cash and near-term receivables, combined.

This deficit is considerable relative to its market capitalization of US$93.8m, so it does suggest shareholders should keep an eye on Neuronetics' 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 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.

View our latest analysis for Neuronetics

In the last year Neuronetics wasn't profitable at an EBIT level, but managed to grow its revenue by 79%, to US$130m. Shareholders probably have their fingers crossed that it can grow its way to profits.

Caveat Emptor

Even though Neuronetics managed to grow its top line quite deftly, the cold hard truth is that it is losing money on the EBIT line. Indeed, it lost a very considerable US$37m 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. 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$31m of cash over the last year. 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. We've identified 5 warning signs with Neuronetics (at least 2 which can't be ignored) , and understanding them should be part of your investment process.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.