Has Sogou Inc (NYSE:SOGO) Got Enough Cash?

Stocks with market capitalization between $2B and $10B, such as Sogou Inc (NYSE:SOGO) with a size of US$3.14B, do not attract as much attention from the investing community as do the small-caps and large-caps. However, history shows that overlooked mid-cap companies have performed better on a risk-adjusted manner than the smaller and larger segment of the market. Let’s take a look at SOGO’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into SOGO here. Check out our latest analysis for Sogou

Can SOGO service its debt comfortably?

A debt-to-equity ratio threshold varies depending on what industry the company operates, since some requires more debt financing than others. Generally, mid-cap stocks are considered financially healthy if its ratio is below 40%. For SOGO, the debt-to-equity ratio is zero, meaning that the company has no debt. It has been operating its business with zero debt and utilising only its equity capital. Investors' risk associated with debt is virtually non-existent with SOGO, and the company has plenty of headroom and ability to raise debt should it need to in the future.

Can SOGO meet its short-term obligations with the cash in hand?

Since Sogou doesn’t have any debt on its balance sheet, it doesn’t have any solvency issues, which is a term used to describe the company’s ability to meet its long-term obligations. But another important aspect of financial health is liquidity: the company’s ability to meet short-term obligations, including payments to suppliers and employees. With current liabilities at US$412.80M, the company has been able to meet these commitments with a current assets level of US$1.12B, leading to a 2.72x current account ratio. Generally, for Internet companies, this is a reasonable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.

Next Steps:

SOGO has no debt in addition to ample cash to cover its short-term commitments. Its safe operations reduces risk for the company and its investors, however, some degree of debt may also ramp up earnings growth and operational efficiency. This is only a rough assessment of financial health, and I'm sure SOGO has company-specific issues impacting its capital structure decisions. You should continue to research Sogou to get a more holistic view of the stock by looking at:

1. Future Outlook: What are well-informed industry analysts predicting for SOGO’s future growth? Take a look at our free research report of analyst consensus for SOGO’s outlook.
2. Valuation: What is SOGO 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 SOGO is currently mispriced by the market.
3. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com

Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article 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.