Investors are always looking for growth in small-cap stocks like Harvard Bioscience, Inc. (NASDAQ:HBIO), with a market cap of US$112m. However, an important fact which most ignore is: how financially healthy is the business? Companies operating in the Life Sciences industry, in particular ones that run negative earnings, are inclined towards being higher risk. Assessing first and foremost the financial health is essential. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Nevertheless, I know these factors are very high-level, so I recommend you dig deeper yourself into HBIO here.
How does HBIO’s operating cash flow stack up against its debt?
Over the past year, HBIO has ramped up its debt from US$12m to US$61m – this includes long-term debt. With this rise in debt, the current cash and short-term investment levels stands at US$6.7m , ready to deploy into the business. Moving onto cash from operations, its small level of operating cash flow means calculating cash-to-debt wouldn’t be too useful, though these low levels of cash means that operational efficiency is worth a look. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can take a look at some of HBIO’s operating efficiency ratios such as ROA here.
Does HBIO’s liquid assets cover its short-term commitments?
Looking at HBIO’s US$19m in current liabilities, the company has been able to meet these commitments with a current assets level of US$55m, leading to a 2.83x current account ratio. For Life Sciences companies, this ratio is within a sensible range since there’s a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Can HBIO service its debt comfortably?
With debt reaching 75% of equity, HBIO may be thought of as relatively highly levered. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. But since HBIO is presently loss-making, 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.
Although HBIO’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. I admit this is a fairly basic analysis for HBIO’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Harvard Bioscience to get a more holistic view of the small-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for HBIO’s future growth? Take a look at our free research report of analyst consensus for HBIO’s outlook.
- Valuation: What is HBIO 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 HBIO 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.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at email@example.com.