Is Stereotaxis (NYSEMKT:STXS) A Risky Investment?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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 Stereotaxis, Inc. (NYSEMKT:STXS) does use debt in its business. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. 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. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Stereotaxis

What Is Stereotaxis's Net Debt?

As you can see below, at the end of September 2020, Stereotaxis had US$2.16m of debt, up from none a year ago. Click the image for more detail. But on the other hand it also has US$43.6m in cash, leading to a US$41.4m net cash position.

A Look At Stereotaxis' Liabilities

According to the last reported balance sheet, Stereotaxis had liabilities of US$13.4m due within 12 months, and liabilities of US$3.07m due beyond 12 months. On the other hand, it had cash of US$43.6m and US$5.41m worth of receivables due within a year. So it actually has US$32.5m more liquid assets than total liabilities.

This short term liquidity is a sign that Stereotaxis could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Stereotaxis boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Stereotaxis'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.

Over 12 months, Stereotaxis made a loss at the EBIT level, and saw its revenue drop to US$27m, which is a fall of 8.8%. That's not what we would hope to see.

So How Risky Is Stereotaxis?

Statistically speaking companies that lose money are riskier than those that make money. And in the last year Stereotaxis had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of US$5.8m and booked a US$7.9m accounting loss. While this does make the company a bit risky, it's important to remember it has net cash of US$41.4m. That means it could keep spending at its current rate for more than two years. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. 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. Take risks, for example - Stereotaxis has 3 warning signs we think you should be aware of.

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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