Nature’s Sunshine Products Inc (NASDAQ:NATR) is a small-cap stock with a market capitalization of US$186.36M. While investors primarily focus on the growth potential and competitive landscape of the small-cap companies, they end up ignoring a key aspect, which could be the biggest threat to its existence: its financial health. Why is it important? Since NATR is loss-making right now, it’s vital to evaluate the current state of its operations and pathway to profitability. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Nevertheless, since I only look at basic financial figures, I recommend you dig deeper yourself into NATR here.
Does NATR generate enough cash through operations?
Over the past year, NATR has ramped up its debt from US$9.92M to US$13.69M , which is made up of current and long term debt. With this increase in debt, the current cash and short-term investment levels stands at US$42.91M for investing into the business. On top of this, NATR has generated US$10.52M in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 76.89%, signalling that NATR’s debt is appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency for loss making businesses since metrics such as return on asset (ROA) requires positive earnings. In NATR’s case, it is able to generate 0.77x cash from its debt capital.
Can NATR meet its short-term obligations with the cash in hand?
Looking at NATR’s most recent US$53.66M liabilities, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.91x. Usually, for Personal Products companies, this is a suitable ratio as there’s enough of a cash buffer without holding too capital in low return investments.
Can NATR service its debt comfortably?NATR’s level of debt is appropriate relative to its total equity, at 11.43%. This range is considered safe as NATR is not taking on too much debt obligation, which may be constraining for future growth. Investors’ risk associated with debt is very low with NATR, and the company has plenty of headroom and ability to raise debt should it need to in the future.
NATR has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. In addition to this, the company will be able to pay all of its upcoming liabilities from its current short-term assets. This is only a rough assessment of financial health, and I’m sure NATR has company-specific issues impacting its capital structure decisions. I recommend you continue to research Nature’s Sunshine Products to get a more holistic view of the stock by looking at:
- Valuation: What is NATR 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 NATR is currently mispriced by the market.
- Historical Performance: What has NATR’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
- 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.