Is GeneDx Holdings (NASDAQ:WGS) Using Debt Sensibly?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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. Importantly, GeneDx Holdings Corp. (NASDAQ:WGS) does carry 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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for GeneDx Holdings

What Is GeneDx Holdings's Net Debt?

As you can see below, at the end of June 2024, GeneDx Holdings had US$52.2m of debt, up from US$6.25m a year ago. Click the image for more detail. However, it does have US$106.9m in cash offsetting this, leading to net cash of US$54.7m.

How Strong Is GeneDx Holdings' Balance Sheet?

The latest balance sheet data shows that GeneDx Holdings had liabilities of US$68.3m due within a year, and liabilities of US$126.8m falling due after that. Offsetting this, it had US$106.9m in cash and US$26.2m in receivables that were due within 12 months. So it has liabilities totalling US$62.0m more than its cash and near-term receivables, combined.

Given GeneDx Holdings has a market capitalization of US$952.2m, it's hard to believe these liabilities pose much threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. While it does have liabilities worth noting, GeneDx Holdings also has more cash than debt, so we're pretty confident it can manage its debt safely. 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 GeneDx Holdings 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 GeneDx Holdings wasn't profitable at an EBIT level, but managed to grow its revenue by 3.1%, to US$244m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is GeneDx Holdings?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And the fact is that over the last twelve months GeneDx Holdings lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of US$96m and booked a US$117m accounting loss. But at least it has US$54.7m on the balance sheet to spend on growth, near-term. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. 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 instance, we've identified 4 warning signs for GeneDx Holdings (1 is concerning) you should be aware of.

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.