Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as Clovis Oncology Inc (NASDAQ:CLVS) with a market-capitalization of US$2.36b, rarely draw their attention. 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. Today we will look at CLVS’s financial liquidity and debt levels, which are strong indicators for whether the company can weather economic downturns or fund strategic acquisitions for future growth. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into CLVS here. Check out our latest analysis for Clovis Oncology
Does CLVS produce enough cash relative to debt?
CLVS has sustained its debt level by about US$282.73m over the last 12 months comprising of short- and long-term debt. At this constant level of debt, CLVS’s cash and short-term investments stands at US$463.81m , 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 CLVS’s operating efficiency ratios such as ROA here.
Does CLVS’s liquid assets cover its short-term commitments?
With current liabilities at US$85.44m, it appears that the company has been able to meet these obligations given the level of current assets of US$559.67m, with a current ratio of 6.55x. However, anything about 3x may be excessive, since CLVS may be leaving too much capital in low-earning investments.
Can CLVS service its debt comfortably?
With debt reaching 92.33% of equity, CLVS may be thought of as relatively highly levered. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses. Though, since CLVS is currently unprofitable, sustainability of its current state of operations becomes a concern. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
CLVS’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 exhibits an ability to meet its near term obligations should an adverse event occur. I admit this is a fairly basic analysis for CLVS’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Clovis Oncology to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for CLVS’s future growth? Take a look at our free research report of analyst consensus for CLVS’s outlook.
- Valuation: What is CLVS 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 CLVS is currently mispriced by the market.
- 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.