While small-cap stocks, such as Cardlytics, Inc. (NASDAQ:CDLX) with its market cap of US$372m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Since CDLX is loss-making right now, it’s essential to evaluate the current state of its operations and pathway to profitability. Let’s work through some financial health checks you may wish to consider if you’re interested in this stock. Nevertheless, these checks don’t give you a full picture, so I recommend you dig deeper yourself into CDLX here.
CDLX’s Debt (And Cash Flows)
CDLX has shrunk its total debt levels in the last twelve months, from US$57m to US$47m – this includes long-term debt. With this debt payback, CDLX’s cash and short-term investments stands at US$40m to keep the business going. Its negative operating cash flow means calculating cash-to-debt wouldn’t be useful. For this article’s sake, I won’t be looking at this today, but you can take a look at some of CDLX’s operating efficiency ratios such as ROA here.
Can CDLX meet its short-term obligations with the cash in hand?
Looking at CDLX’s US$52m in current liabilities, it appears that the company has been able to meet these obligations given the level of current assets of US$124m, with a current ratio of 2.4x. The current ratio is calculated by dividing current assets by current liabilities. Generally, for Media companies, this is a reasonable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Does CDLX face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 90%, CDLX can be considered as an above-average leveraged company. This is a bit unusual for a small-cap stock, since they generally have a harder time borrowing than large more established companies. Though, since CDLX is presently loss-making, there’s a question of sustainability of its current operations. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
CDLX’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. I admit this is a fairly basic analysis for CDLX’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Cardlytics to get a better picture of the small-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for CDLX’s future growth? Take a look at our free research report of analyst consensus for CDLX’s outlook.
- Valuation: What is CDLX 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 CDLX 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.
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