Want to participate in a short research study? Help shape the future of investing tools and you could win a $250 gift card!
Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as Penumbra, Inc. (NYSE:PEN), with a market capitalization of US$5.1b, rarely draw their attention from the investing community. However, generally ignored mid-caps have historically delivered better risk-adjusted returns than the two other categories of stocks. This article will examine PEN’s financial liquidity and debt levels to get an idea of whether the company can deal with cyclical downturns and maintain funds to accommodate strategic spending for future growth. Don’t forget that this is a general and concentrated examination of Penumbra’s financial health, so you should conduct further analysis into PEN here.
Does PEN face the risk of succumbing to its debt-load?
A debt-to-equity ratio threshold varies depending on what industry the company operates, since some requires more debt financing than others. Generally, mid-cap stocks are considered financially healthy if its ratio is below 40%. For Penumbra, investors should not worry about its debt levels because the company has none! It has been operating its business with zero debt and utilising only its equity capital. Investors’ risk associated with debt is virtually non-existent with PEN, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Does PEN’s liquid assets cover its short-term commitments?
Given zero long-term debt on its balance sheet, Penumbra has no solvency issues, which is used to describe the company’s ability to meet its long-term obligations. However, another measure of financial health is its short-term obligations, which is known as liquidity. These include payments to suppliers, employees and other stakeholders. Looking at PEN’s US$65m in current liabilities, it seems that the business has been able to meet these commitments with a current assets level of US$398m, leading to a 6.11x current account ratio. Having said that, a ratio greater than 3x may be considered by some to be quite high, however this is not necessarily a negative for the company.
PEN has no debt in addition to ample cash to cover its short-term liabilities. Its safe operations reduces risk for the company and its investors, though, some level of debt could also ramp up earnings growth and operational efficiency. This is only a rough assessment of financial health, and I’m sure PEN has company-specific issues impacting its capital structure decisions. I suggest you continue to research Penumbra to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for PEN’s future growth? Take a look at our free research report of analyst consensus for PEN’s outlook.
- Valuation: What is PEN worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether PEN is currently mispriced by the market.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at email@example.com.