Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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. Importantly, TG Therapeutics, Inc. (NASDAQ:TGTX) does carry debt. But should shareholders be worried about its use of debt?
Why Does Debt Bring Risk?
Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. If things get really bad, the lenders can take control of the business. 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.
How Much Debt Does TG Therapeutics Carry?
You can click the graphic below for the historical numbers, but it shows that as of March 2021 TG Therapeutics had US$31.0m of debt, an increase on US$29.4m, over one year. But on the other hand it also has US$523.8m in cash, leading to a US$492.8m net cash position.
How Healthy Is TG Therapeutics' Balance Sheet?
The latest balance sheet data shows that TG Therapeutics had liabilities of US$92.5m due within a year, and liabilities of US$10.9m falling due after that. On the other hand, it had cash of US$523.8m and US$771.0k worth of receivables due within a year. So it actually has US$421.2m more liquid assets than total liabilities.
This surplus suggests that TG Therapeutics has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that TG Therapeutics has more cash than debt is arguably a good indication that it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if TG Therapeutics can strengthen its balance sheet over time. 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, TG Therapeutics reported revenue of US$907k, which is a gain of 497%, 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 TG Therapeutics?
We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that TG Therapeutics 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$234m and booked a US$319m accounting loss. With only US$492.8m on the balance sheet, it would appear that its going to need to raise capital again soon. Importantly, TG Therapeutics's revenue growth is hot to trot. While unprofitable companies can be risky, they can also grow hard and fast in those pre-profit years. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should learn about the 2 warning signs we've spotted with TG Therapeutics (including 1 which is concerning) .
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.
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TG Therapeutics, Inc., a commercial stage biopharmaceutical company, focuses on the acquisition, development, and commercialization of novel treatments for B-cell malignancies and autoimmune diseases.
High growth potential and fair value.