Is Criteo (NASDAQ:CRTO) Weighed On By Its Debt Load?

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. Importantly, Criteo S.A. (NASDAQ:CRTO) does carry debt. But the real question is whether this debt is making the company risky.

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for Criteo

What Is Criteo's Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2023 Criteo had US$4.28m of debt, an increase on US$3.84m, over one year. But on the other hand it also has US$326.8m in cash, leading to a US$322.5m net cash position.

A Look At Criteo's Liabilities

According to the last reported balance sheet, Criteo had liabilities of US$992.9m due within 12 months, and liabilities of US$148.4m due beyond 12 months. On the other hand, it had cash of US$326.8m and US$676.0m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$138.5m.

Given Criteo has a market capitalization of US$1.90b, it's hard to believe these liabilities pose much threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. Despite its noteworthy liabilities, Criteo boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Criteo can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year Criteo had a loss before interest and tax, and actually shrunk its revenue by 12%, to US$2.0b. That's not what we would hope to see.

So How Risky Is Criteo?

While Criteo lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow US$112m. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. Until we see some positive EBIT, we're a bit cautious of the stock, not least because of the rather modest revenue growth. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that Criteo is showing 1 warning sign in our investment analysis , you should know about...

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.