Is BigCommerce Holdings (NASDAQ:BIGC) A Risky Investment?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says '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. We note that BigCommerce Holdings, Inc. (NASDAQ:BIGC) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

What Risk Does Debt Bring?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for BigCommerce Holdings

How Much Debt Does BigCommerce Holdings Carry?

As you can see below, BigCommerce Holdings had US$340.2m of debt, at December 2023, which is about the same as the year before. You can click the chart for greater detail. On the flip side, it has US$270.1m in cash leading to net debt of about US$70.0m.

How Strong Is BigCommerce Holdings' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that BigCommerce Holdings had liabilities of US$70.8m due within 12 months and liabilities of US$347.8m due beyond that. Offsetting these obligations, it had cash of US$270.1m as well as receivables valued at US$37.7m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$110.7m.

While this might seem like a lot, it is not so bad since BigCommerce Holdings has a market capitalization of US$533.0m, and so it could probably strengthen its balance sheet by raising capital if it needed to. However, it is still worthwhile taking a close look at its ability to pay off debt. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if BigCommerce Holdings can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

In the last year BigCommerce Holdings wasn't profitable at an EBIT level, but managed to grow its revenue by 11%, to US$309m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

Caveat Emptor

Importantly, BigCommerce Holdings had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost a very considerable US$56m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled US$28m in negative free cash flow over the last twelve months. 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. Be aware that BigCommerce Holdings is showing 2 warning signs in our investment analysis , you should know about...

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.