Nevro (NYSE:NVRO) Has Debt But No Earnings; Should You Worry?

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.' 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 Nevro Corp. (NYSE:NVRO) 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. 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 Nevro

How Much Debt Does Nevro Carry?

As you can see below, Nevro had US$187.2m of debt, at March 2023, which is about the same as the year before. You can click the chart for greater detail. However, it does have US$341.8m in cash offsetting this, leading to net cash of US$154.6m.

How Strong Is Nevro's Balance Sheet?

The latest balance sheet data shows that Nevro had liabilities of US$74.9m due within a year, and liabilities of US$198.3m falling due after that. Offsetting this, it had US$341.8m in cash and US$65.7m in receivables that were due within 12 months. So it actually has US$134.3m more liquid assets than total liabilities.

This excess liquidity suggests that Nevro is taking a careful approach to debt. Due to its strong net asset position, it is not likely to face issues with its lenders. Succinctly put, Nevro boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Nevro'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 Nevro wasn't profitable at an EBIT level, but managed to grow its revenue by 7.4%, to US$415m. We usually like to see faster growth from unprofitable companies, but each to their own.

So How Risky Is Nevro?

While Nevro lost money on an earnings before interest and tax (EBIT) level, it actually booked a paper profit of US$2.3m. So when you consider it has net cash, along with the statutory profit, the stock probably isn't as risky as it might seem, at least in the short term. We'll feel more comfortable with the stock once EBIT is positive, given the lacklustre revenue growth. 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. We've identified 1 warning sign with Nevro , and understanding them should be part of your investment process.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.