Stock Analysis

Is Remark Holdings (NASDAQ:MARK) A Risky Investment?

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NasdaqCM:MARK
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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, Remark Holdings, Inc. (NASDAQ:MARK) does carry debt. But the real question is whether this debt is making the company risky.

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Remark Holdings

How Much Debt Does Remark Holdings Carry?

You can click the graphic below for the historical numbers, but it shows that as of March 2022 Remark Holdings had US$25.2m of debt, an increase on US$7.47m, over one year. On the flip side, it has US$24.4m in cash leading to net debt of about US$816.0k.

debt-equity-history-analysis
NasdaqCM:MARK Debt to Equity History July 22nd 2022

How Healthy Is Remark Holdings' Balance Sheet?

According to the last reported balance sheet, Remark Holdings had liabilities of US$40.9m due within 12 months, and liabilities of US$55.0k due beyond 12 months. On the other hand, it had cash of US$24.4m and US$13.1m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$3.46m.

Of course, Remark Holdings has a market capitalization of US$49.9m, so these liabilities are probably manageable. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Remark Holdings will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, Remark Holdings reported revenue of US$16m, which is a gain of 15%, although it did not report any earnings before interest and tax. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Over the last twelve months Remark Holdings produced an earnings before interest and tax (EBIT) loss. Indeed, it lost a very considerable US$14m at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through US$25m of cash over the last year. So in short it's a really risky stock. 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. We've identified 4 warning signs with Remark Holdings , and understanding them should be part of your investment process.

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.

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

Find out whether Remark Holdings 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.

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About NasdaqCM:MARK

Remark Holdings

Remark Holdings, Inc. primarily focuses on the development and deployment of artificial intelligence-based solutions for businesses and software developers.

The Snowflake is a visual investment summary with the score of each axis being calculated by 6 checks in 5 areas.

Analysis AreaScore (0-6)
Valuation1
Future Growth0
Past Performance0
Financial Health2
Dividends0

Read more about these checks in the individual report sections or in our analysis model.

Imperfect balance sheet and overvalued.