Is SemiLEDs (NASDAQ:LEDS) A Risky Investment?

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. As with many other companies SemiLEDs Corporation (NASDAQ:LEDS) makes use of debt. But the real question is whether this debt is making the company risky.

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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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

How Much Debt Does SemiLEDs Carry?

You can click the graphic below for the historical numbers, but it shows that SemiLEDs had US$1.71m of debt in August 2025, down from US$3.72m, one year before. However, its balance sheet shows it holds US$2.59m in cash, so it actually has US$885.0k net cash.

How Healthy Is SemiLEDs' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that SemiLEDs had liabilities of US$11.4m due within 12 months and liabilities of US$1.43m due beyond that. Offsetting this, it had US$2.59m in cash and US$3.59m in receivables that were due within 12 months. So its liabilities total US$6.63m more than the combination of its cash and short-term receivables.

This deficit isn't so bad because SemiLEDs is worth US$16.6m, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. While it does have liabilities worth noting, SemiLEDs also has more cash than debt, so we're pretty confident it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But it is SemiLEDs'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 SemiLEDs

Over 12 months, SemiLEDs reported revenue of US$43m, which is a gain of 730%, although it did not report any earnings before interest and tax. When it comes to revenue growth, that's like nailing the game winning 3-pointer!

So How Risky Is SemiLEDs?

While SemiLEDs lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow US$1.6m. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. One positive is that SemiLEDs is growing revenue apace, which makes it easier to sell a growth story and raise capital if need be. But that doesn't change our opinion that the stock is 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. For example, we've discovered 2 warning signs for SemiLEDs that you should be aware of before investing here.

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.