Stock Analysis

We Think Fluent (NASDAQ:FLNT) Can Manage Its Debt With Ease

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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.' 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. Importantly, Fluent, Inc. (NASDAQ:FLNT) does carry debt. But the more important question is: how much risk is that debt creating?

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. If things get really bad, the lenders can take control of the business. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for Fluent

What Is Fluent's Debt?

The image below, which you can click on for greater detail, shows that Fluent had debt of US$41.8m at the end of September 2022, a reduction from US$46.5m over a year. However, because it has a cash reserve of US$33.1m, its net debt is less, at about US$8.67m.

NasdaqGM:FLNT Debt to Equity History March 14th 2023

A Look At Fluent's Liabilities

According to the last reported balance sheet, Fluent had liabilities of US$51.2m due within 12 months, and liabilities of US$41.7m due beyond 12 months. On the other hand, it had cash of US$33.1m and US$67.6m worth of receivables due within a year. So it can boast US$7.69m more liquid assets than total liabilities.

This short term liquidity is a sign that Fluent could probably pay off its debt with ease, as its balance sheet is far from stretched.

We measure a company's debt load relative to its earnings power by looking at its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and by calculating how easily its earnings before interest and tax (EBIT) cover its interest expense (interest cover). Thus we consider debt relative to earnings both with and without depreciation and amortization expenses.

Looking at its net debt to EBITDA of 0.37 and interest cover of 6.1 times, it seems to us that Fluent is probably using debt in a pretty reasonable way. So we'd recommend keeping a close eye on the impact financing costs are having on the business. Better yet, Fluent grew its EBIT by 113% last year, which is an impressive improvement. That boost will make it even easier to pay down debt going forward. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Fluent can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. So we clearly need to look at whether that EBIT is leading to corresponding free cash flow. During the last three years, Fluent generated free cash flow amounting to a very robust 85% of its EBIT, more than we'd expect. That positions it well to pay down debt if desirable to do so.

Our View

Fluent's conversion of EBIT to free cash flow suggests it can handle its debt as easily as Cristiano Ronaldo could score a goal against an under 14's goalkeeper. And that's just the beginning of the good news since its EBIT growth rate is also very heartening. It looks Fluent has no trouble standing on its own two feet, and it has no reason to fear its lenders. To our minds it has a healthy happy balance sheet. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that Fluent is showing 2 warning signs in our investment analysis , you should know about...

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

What are the risks and opportunities for Fluent?

Fluent, Inc. provides data-driven digital marketing services primarily in the United States.

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  • Earnings are forecast to grow 98.09% per year


  • Does not have a meaningful market cap ($64M)

  • Volatile share price over the past 3 months

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