Is Repligen (NASDAQ:RGEN) A Risky Investment?

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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. As with many other companies Repligen Corporation (NASDAQ:RGEN) makes use of debt. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. 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.

View our latest analysis for Repligen

What Is Repligen's Debt?

As you can see below, at the end of September 2024, Repligen had US$521.6m of debt, up from US$286.0m a year ago. Click the image for more detail. But on the other hand it also has US$784.0m in cash, leading to a US$262.4m net cash position.

How Healthy Is Repligen's Balance Sheet?

According to the last reported balance sheet, Repligen had liabilities of US$108.4m due within 12 months, and liabilities of US$705.6m due beyond 12 months. Offsetting these obligations, it had cash of US$784.0m as well as receivables valued at US$129.0m due within 12 months. So it actually has US$99.0m more liquid assets than total liabilities.

Having regard to Repligen's size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the US$8.62b company is short on cash, but still worth keeping an eye on the balance sheet. Simply put, the fact that Repligen has more cash than debt is arguably a good indication that it can manage its debt safely.

It is just as well that Repligen's load is not too heavy, because its EBIT was down 59% over the last year. When a company sees its earnings tank, it can sometimes find its relationships with its lenders turn sour. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Repligen's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. Repligen may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Over the last three years, Repligen recorded free cash flow worth a fulsome 83% of its EBIT, which is stronger than we'd usually expect. That positions it well to pay down debt if desirable to do so.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Repligen has net cash of US$262.4m, as well as more liquid assets than liabilities. And it impressed us with free cash flow of US$131m, being 83% of its EBIT. So we are not troubled with Repligen's debt use. Of course, we wouldn't say no to the extra confidence that we'd gain if we knew that Repligen insiders have been buying shares: if you're on the same wavelength, you can find out if insiders are buying by clicking this link.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.