Is Sportsman's Warehouse Holdings (NASDAQ:SPWH) Weighed On By Its Debt Load?

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.' 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. As with many other companies Sportsman's Warehouse Holdings, Inc. (NASDAQ:SPWH) makes use of debt. But should shareholders be worried about its use of debt?

Our free stock report includes 3 warning signs investors should be aware of before investing in Sportsman's Warehouse Holdings. Read for free now.

What Risk Does Debt Bring?

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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Sportsman's Warehouse Holdings's Net Debt?

As you can see below, Sportsman's Warehouse Holdings had US$120.7m of debt at February 2025, down from US$140.4m a year prior. However, because it has a cash reserve of US$2.83m, its net debt is less, at about US$117.8m.

How Healthy Is Sportsman's Warehouse Holdings' Balance Sheet?

According to the last reported balance sheet, Sportsman's Warehouse Holdings had liabilities of US$284.0m due within 12 months, and liabilities of US$332.4m due beyond 12 months. On the other hand, it had cash of US$2.83m and US$2.41m worth of receivables due within a year. So its liabilities total US$611.2m more than the combination of its cash and short-term receivables.

The deficiency here weighs heavily on the US$68.5m 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. After all, Sportsman's Warehouse Holdings would likely require a major re-capitalisation if it had to pay its creditors today. 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 Sportsman's Warehouse Holdings'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.

View our latest analysis for Sportsman's Warehouse Holdings

In the last year Sportsman's Warehouse Holdings had a loss before interest and tax, and actually shrunk its revenue by 7.0%, to US$1.2b. That's not what we would hope to see.

Caveat Emptor

Over the last twelve months Sportsman's Warehouse Holdings produced an earnings before interest and tax (EBIT) loss. Its EBIT loss was a whopping US$14m. Reflecting on this and the significant total liabilities, it's hard to know what to say about the stock because of our intense dis-affinity for it. Sure, the company might have a nice story about how they are going on to a brighter future. But the reality is that it is low on liquid assets relative to liabilities, and it lost US$33m in the last year. So we're not very excited about owning this stock. Its too risky for us. 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. To that end, you should learn about the 3 warning signs we've spotted with Sportsman's Warehouse Holdings (including 1 which is potentially serious) .

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.

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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.