Stocks with market capitalization between $2B and $10B, such as Spectrum Pharmaceuticals Inc (NASDAQ:SPPI) with a size of US$2.20b, do not attract as much attention from the investing community as do the small-caps and large-caps. However, generally ignored mid-caps have historically delivered better risk adjusted returns than both of those groups. Let’s take a look at SPPI’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Don’t forget that this is a general and concentrated examination of Spectrum Pharmaceuticals’s financial health, so you should conduct further analysis into SPPI here.
How does SPPI’s operating cash flow stack up against its debt?
SPPI’s debt levels have fallen from US$98.59m to US$38.82m over the last 12 months , which comprises of short- and long-term debt. With this reduction in debt, SPPI’s cash and short-term investments stands at US$231.92m for investing into the business. Moving onto cash from operations, its trivial cash flows from operations make the cash-to-debt ratio less useful to us, though these low levels of cash means that operational efficiency is worth a look. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can examine some of SPPI’s operating efficiency ratios such as ROA here.
Does SPPI’s liquid assets cover its short-term commitments?
With current liabilities at US$93.42m, the company has been able to meet these obligations given the level of current assets of US$277.03m, with a current ratio of 2.97x. Generally, for Biotechs companies, this is a reasonable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Can SPPI service its debt comfortably?
With a debt-to-equity ratio of 11.97%, SPPI’s debt level may be seen as prudent. This range is considered safe as SPPI is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. SPPI’s risk around capital structure is low, and the company has the headroom and ability to raise debt should it need to in the future.
Although SPPI’s debt level is relatively low, its cash flow levels still could not copiously cover its borrowings. This may indicate room for improvement in terms of its operating efficiency. However, the company exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven’t considered other factors such as how SPPI has been performing in the past. I recommend you continue to research Spectrum Pharmaceuticals to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for SPPI’s future growth? Take a look at our free research report of analyst consensus for SPPI’s outlook.
- Valuation: What is SPPI 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 SPPI 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.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.