Is Natera (NASDAQ:NTRA) A Risky Investment?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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. We note that Natera, Inc. (NASDAQ:NTRA) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. If things get really bad, the lenders can take control of the business. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for Natera

What Is Natera's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2023 Natera had US$363.1m of debt, an increase on US$331.5m, over one year. But it also has US$936.6m in cash to offset that, meaning it has US$573.5m net cash.

A Look At Natera's Liabilities

According to the last reported balance sheet, Natera had liabilities of US$289.9m due within 12 months, and liabilities of US$371.9m due beyond 12 months. On the other hand, it had cash of US$936.6m and US$255.1m worth of receivables due within a year. So it can boast US$529.8m more liquid assets than total liabilities.

This surplus suggests that Natera has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that Natera has more cash than debt is arguably a good indication that it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Natera can strengthen its balance sheet over time. 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, Natera reported revenue of US$989m, which is a gain of 27%, although it did not report any earnings before interest and tax. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is Natera?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And in the last year Natera had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of US$387m and booked a US$499m accounting loss. While this does make the company a bit risky, it's important to remember it has net cash of US$573.5m. That kitty means the company can keep spending for growth for at least two years, at current rates. With very solid revenue growth in the last year, Natera may be on a path to profitability. Pre-profit companies are often risky, but they can also offer great rewards. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For example - Natera has 2 warning signs we think you should be aware of.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.