Stock Analysis

Rock star Growth Puts TG Therapeutics (NASDAQ:TGTX) In A Position To Use Debt

  •  Updated
Source: Shutterstock

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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 the more important question is: how much risk is that debt creating?

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 usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for TG Therapeutics

What Is TG Therapeutics's Net Debt?

You can click the graphic below for the historical numbers, but it shows that TG Therapeutics had US$23.9m of debt in June 2021, down from US$29.8m, one year before. However, its balance sheet shows it holds US$443.5m in cash, so it actually has US$419.6m net cash.

NasdaqCM:TGTX Debt to Equity History October 25th 2021

How Strong Is TG Therapeutics' Balance Sheet?

We can see from the most recent balance sheet that TG Therapeutics had liabilities of US$87.6m falling due within a year, and liabilities of US$10.7m due beyond that. Offsetting this, it had US$443.5m in cash and US$931.0k in receivables that were due within 12 months. So it can boast US$346.1m 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.

In the last year TG Therapeutics wasn't profitable at an EBIT level, but managed to grow its revenue by 1,488%, to US$2.4m. That's virtually the hole-in-one of revenue growth!

So How Risky Is TG Therapeutics?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year TG Therapeutics had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through US$251m of cash and made a loss of US$345m. Given it only has net cash of US$419.6m, the company may need to raise more capital if it doesn't reach break-even soon. The good news for shareholders is that TG Therapeutics has dazzling revenue growth, so there's a very good chance it can boost its free cash flow in the years to come. While unprofitable companies can be risky, they can also grow hard and fast in those pre-profit years. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. Be aware that TG Therapeutics is showing 4 warning signs in our investment analysis , you should know about...

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.

Valuation is complex, but we're helping make it simple.

Find out whether TG Therapeutics is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis