Is Travere Therapeutics (NASDAQ:TVTX) A Risky Investment?

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. We can see that Travere Therapeutics, Inc. (NASDAQ:TVTX) does use debt in its business. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. If things get really bad, the lenders can take control of the business. 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. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for Travere Therapeutics

What Is Travere Therapeutics's Debt?

As you can see below, at the end of September 2022, Travere Therapeutics had US$375.1m of debt, up from US$223.7m a year ago. Click the image for more detail. However, it does have US$506.3m in cash offsetting this, leading to net cash of US$131.2m.

A Look At Travere Therapeutics' Liabilities

We can see from the most recent balance sheet that Travere Therapeutics had liabilities of US$131.0m falling due within a year, and liabilities of US$494.5m due beyond that. Offsetting these obligations, it had cash of US$506.3m as well as receivables valued at US$12.7m due within 12 months. So it has liabilities totalling US$106.5m more than its cash and near-term receivables, combined.

Of course, Travere Therapeutics has a market capitalization of US$1.29b, so these liabilities are probably manageable. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Despite its noteworthy liabilities, Travere Therapeutics boasts net cash, so it's fair to say it does not have a heavy debt load! 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 Travere Therapeutics'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.

In the last year Travere Therapeutics had a loss before interest and tax, and actually shrunk its revenue by 3.5%, to US$213m. That's not what we would hope to see.

So How Risky Is Travere Therapeutics?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And in the last year Travere Therapeutics had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through US$188m of cash and made a loss of US$264m. While this does make the company a bit risky, it's important to remember it has net cash of US$131.2m. That kitty means the company can keep spending for growth for at least two years, at current rates. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should be aware of the 3 warning signs we've spotted with Travere Therapeutics .

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.