Stock Analysis

Is Soligenix (NASDAQ:SNGX) Weighed On By Its Debt Load?

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NasdaqCM:SNGX
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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.' 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. We can see that Soligenix, Inc. (NASDAQ:SNGX) does use debt in its business. 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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

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What Is Soligenix's Debt?

As you can see below, at the end of December 2020, Soligenix had US$10.3m of debt, up from none a year ago. Click the image for more detail. But it also has US$18.7m in cash to offset that, meaning it has US$8.40m net cash.

debt-equity-history-analysis
NasdaqCM:SNGX Debt to Equity History May 8th 2021

How Strong Is Soligenix's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Soligenix had liabilities of US$6.08m due within 12 months and liabilities of US$10.1m due beyond that. Offsetting this, it had US$18.7m in cash and US$564.9k in receivables that were due within 12 months. So it actually has US$3.09m more liquid assets than total liabilities.

This short term liquidity is a sign that Soligenix could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that Soligenix 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 Soligenix'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.

Over 12 months, Soligenix made a loss at the EBIT level, and saw its revenue drop to US$2.4m, which is a fall of 49%. To be frank that doesn't bode well.

So How Risky Is Soligenix?

Statistically speaking companies that lose money are riskier than those that make money. And in the last year Soligenix had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through US$11m of cash and made a loss of US$18m. With only US$8.40m on the balance sheet, it would appear that its going to need to raise capital again soon. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 5 warning signs for Soligenix (of which 1 is concerning!) you should know about.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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What are the risks and opportunities for Soligenix?

Soligenix, Inc., a late-stage biopharmaceutical company, focuses on developing and commercializing products to treat rare diseases in the United States.

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Rewards

  • Revenue is forecast to grow 126.77% per year

Risks

  • Earnings are forecast to decline by an average of 17.4% per year for the next 3 years

  • Makes less than USD$1m in revenue ($858K)

  • Does not have a meaningful market cap ($20M)

  • Volatile share price over the past 3 months

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

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