Is Adaptive Biotechnologies (NASDAQ:ADPT) A Risky Investment?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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, Adaptive Biotechnologies Corporation (NASDAQ:ADPT) does carry debt. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Adaptive Biotechnologies

What Is Adaptive Biotechnologies's Debt?

As you can see below, at the end of June 2023, Adaptive Biotechnologies had US$128.2m of debt, up from none a year ago. Click the image for more detail. But it also has US$417.2m in cash to offset that, meaning it has US$289.1m net cash.

How Healthy Is Adaptive Biotechnologies' Balance Sheet?

According to the last reported balance sheet, Adaptive Biotechnologies had liabilities of US$95.3m due within 12 months, and liabilities of US$273.2m due beyond 12 months. Offsetting these obligations, it had cash of US$417.2m as well as receivables valued at US$32.4m due within 12 months. So it actually has US$81.1m more liquid assets than total liabilities.

This surplus suggests that Adaptive Biotechnologies has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Adaptive Biotechnologies 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 it is future earnings, more than anything, that will determine Adaptive Biotechnologies's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Over 12 months, Adaptive Biotechnologies reported revenue of US$190m, which is a gain of 19%, although it did not report any earnings before interest and tax. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is Adaptive Biotechnologies?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And the fact is that over the last twelve months Adaptive Biotechnologies lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of US$170m and booked a US$191m accounting loss. But the saving grace is the US$289.1m on the balance sheet. That means it could keep spending at its current rate for more than two years. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 1 warning sign for Adaptive Biotechnologies you should be aware of.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.