Investors are always looking for growth in small-cap stocks like Axsome Therapeutics Inc (NASDAQ:AXSM), with a market cap of US$77.06m. However, an important fact which most ignore is: how financially healthy is the business? Companies operating in the Pharmaceuticals industry, in particular ones that run negative earnings, are inclined towards being higher risk. Assessing first and foremost the financial health is crucial. I believe these basic checks tell most of the story you need to know. Nevertheless, I know these factors are very high-level, so I suggest you dig deeper yourself into AXSM here.
How much cash does AXSM generate through its operations?
Over the past year, AXSM has maintained its debt levels at around US$9.93m comprising of short- and long-term debt. At this stable level of debt, the current cash and short-term investment levels stands at US$34.02m , ready to deploy into the business. Moving onto cash from operations, its operating cash flow is not yet significant enough to calculate a meaningful cash-to-debt ratio, indicating that operational efficiency is something we’d need to take a look at. For this article’s sake, I won’t be looking at this today, but you can examine some of AXSM’s operating efficiency ratios such as ROA here.
Can AXSM meet its short-term obligations with the cash in hand?
Looking at AXSM’s most recent US$12.18m liabilities, the company has been able to meet these commitments with a current assets level of US$35.30m, leading to a 2.9x current account ratio. For Pharmaceuticals companies, this ratio is within a sensible range since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Is AXSM’s debt level acceptable?With a debt-to-equity ratio of 73.16%, AXSM can be considered as an above-average leveraged company. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. But since AXSM is presently unprofitable, 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.
AXSM’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. However, the company will be able to pay all of its upcoming liabilities from its current short-term assets. I admit this is a fairly basic analysis for AXSM’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Axsome Therapeutics to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for AXSM’s future growth? Take a look at our free research report of analyst consensus for AXSM’s outlook.
- Historical Performance: What has AXSM’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
- 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.