Stock Analysis

Is uniQure (NASDAQ:QURE) A Risky Investment?

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NasdaqGS:QURE
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Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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 uniQure N.V. (NASDAQ:QURE) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for uniQure

What Is uniQure's Debt?

The chart below, which you can click on for greater detail, shows that uniQure had US$35.6m in debt in December 2020; about the same as the year before. However, it does have US$244.9m in cash offsetting this, leading to net cash of US$209.3m.

debt-equity-history-analysis
NasdaqGS:QURE Debt to Equity History May 9th 2021

How Strong Is uniQure's Balance Sheet?

According to the last reported balance sheet, uniQure had liabilities of US$27.3m due within 12 months, and liabilities of US$69.2m due beyond 12 months. Offsetting this, it had US$244.9m in cash and US$6.62m in receivables that were due within 12 months. So it can boast US$155.1m more liquid assets than total liabilities.

This short term liquidity is a sign that uniQure could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that uniQure has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine uniQure's ability to maintain a healthy balance sheet going forward. 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, uniQure reported revenue of US$38m, which is a gain of 416%, although it did not report any earnings before interest and tax. When it comes to revenue growth, that's like nailing the game winning 3-pointer!

So How Risky Is uniQure?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that uniQure had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of US$144m and booked a US$125m accounting loss. While this does make the company a bit risky, it's important to remember it has net cash of US$209.3m. That kitty means the company can keep spending for growth for at least two years, at current rates. Importantly, uniQure's revenue growth is hot to trot. High growth pre-profit companies may well be risky, but they can also offer great rewards. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. We've identified 2 warning signs with uniQure , and understanding them should be part of your investment process.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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What are the risks and opportunities for uniQure?

uniQure N.V., a gene therapy company, engages in the development of treatments for patients suffering from genetic and other devastating diseases.

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Rewards

  • Trading at 89.1% below our estimate of its fair value

  • Revenue is forecast to grow 37.82% per year

Risks

  • Significant insider selling over the past 3 months

  • Currently unprofitable and not forecast to become profitable over the next 3 years

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