Star Holdings (NASDAQ:STHO) Has Debt But No Earnings; Should You Worry?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. Importantly, Star Holdings (NASDAQ:STHO) does carry debt. But is this debt a concern to shareholders?

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

When Is Debt Dangerous?

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, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

What Is Star Holdings's Net Debt?

As you can see below, at the end of December 2024, Star Holdings had US$217.3m of debt, up from US$192.9m a year ago. Click the image for more detail. However, it does have US$35.0m in cash offsetting this, leading to net debt of about US$182.4m.

How Strong Is Star Holdings' Balance Sheet?

According to the last reported balance sheet, Star Holdings had liabilities of US$22.9m due within 12 months, and liabilities of US$240.8m due beyond 12 months. Offsetting this, it had US$35.0m in cash and US$39.2m in receivables that were due within 12 months. So it has liabilities totalling US$189.5m more than its cash and near-term receivables, combined.

The deficiency here weighs heavily on the US$100.2m company itself, as if a child were struggling under the weight of an enormous back-pack full of books, his sports gear, and a trumpet. So we definitely think shareholders need to watch this one closely. At the end of the day, Star Holdings would probably need a major re-capitalization if its creditors were to demand repayment. There's no doubt that we learn most about debt from the balance sheet. But it is Star Holdings's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend .

See our latest analysis for Star Holdings

In the last year Star Holdings had a loss before interest and tax, and actually shrunk its revenue by 7.9%, to US$113m. We would much prefer see growth.

Caveat Emptor

Importantly, Star Holdings had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at US$9.8m. When we look at that alongside the significant liabilities, we're not particularly confident about the company. We'd want to see some strong near-term improvements before getting too interested in the stock. Not least because it had negative free cash flow of US$31m over the last twelve months. So suffice it to say we consider the stock to be risky. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should be aware of the 1 warning sign we've spotted with Star Holdings .

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.