Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as PTC Therapeutics, Inc. (NASDAQ:PTCT), with a market capitalization of US$2.1b, rarely draw their attention from the investing community. Despite this, the two other categories have lagged behind the risk-adjusted returns of commonly ignored mid-cap stocks. Today we will look at PTCT’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. Don’t forget that this is a general and concentrated examination of Therapeutics’s financial health, so you should conduct further analysis into PTCT here.
PTCT’s Debt (And Cash Flows)
PTCT has built up its total debt levels in the last twelve months, from US$145m to US$153m , which accounts for long term debt. With this growth in debt, PTCT’s cash and short-term investments stands at US$228m to keep the business going. Its negative operating cash flow means calculating cash-to-debt wouldn’t be useful. For this article’s sake, I won’t be looking at this today, but you can assess some of PTCT’s operating efficiency ratios such as ROA here.
Can PTCT pay its short-term liabilities?
At the current liabilities level of US$167m, the company has been able to meet these commitments with a current assets level of US$321m, leading to a 1.92x current account ratio. The current ratio is the number you get when you divide current assets by current liabilities. For Biotechs 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.
Does PTCT face the risk of succumbing to its debt-load?
With debt reaching 44% of equity, PTCT 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 PTCT is currently loss-making, sustainability of its current state of operations becomes a concern. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
Although PTCT’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. Since there is also no concerns around PTCT’s liquidity needs, this may be its optimal capital structure for the time being. This is only a rough assessment of financial health, and I’m sure PTCT has company-specific issues impacting its capital structure decisions. I suggest you continue to research Therapeutics to get a more holistic view of the mid-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for PTCT’s future growth? Take a look at our free research report of analyst consensus for PTCT’s outlook.
- Valuation: What is PTCT 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 PTCT 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.
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