Investors are always looking for growth in small-cap stocks like Cardlytics Inc (NASDAQ:CDLX), with a market cap of US$390.69m. However, an important fact which most ignore is: how financially healthy is the business? Internet companies, especially ones that are currently loss-making, tend to be high risk. So, understanding the company’s financial health becomes crucial. Here are few basic financial health checks you should consider before taking the plunge. Though, since I only look at basic financial figures, I’d encourage you to dig deeper yourself into CDLX here.
Does CDLX produce enough cash relative to debt?
CDLX’s debt levels have fallen from US$124.36m to US$58.55m over the last 12 months , which is made up of current and long term debt. With this reduction in debt, CDLX’s cash and short-term investments stands at US$89.79m , ready to deploy into the business. Moving onto cash from operations, its small level of operating cash flow means calculating cash-to-debt wouldn’t be too useful, though these low levels of cash means that operational efficiency is worth a look. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can take a look at some of CDLX’s operating efficiency ratios such as ROA here.
Can CDLX meet its short-term obligations with the cash in hand?
At the current liabilities level of US$80.80m liabilities, the company has been able to meet these obligations given the level of current assets of US$136.10m, with a current ratio of 1.68x. Usually, for Internet companies, this is a suitable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Can CDLX service its debt comfortably?CDLX is a highly-leveraged company with debt exceeding equity by over 100%. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. Though, since CDLX is currently unprofitable, there’s a question of sustainability of its current operations. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
At its current level of cash flow coverage, CDLX has room for improvement to better cushion for events which may require debt repayment. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. I admit this is a fairly basic analysis for CDLX’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Cardlytics to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for CDLX’s future growth? Take a look at our free research report of analyst consensus for CDLX’s outlook.
- Valuation: What is CDLX worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether CDLX is currently mispriced by the market.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at email@example.com.