Is Bottomline Technologies (de) (NASDAQ:EPAY) A Risky Investment?

By
Simply Wall St
Published
July 24, 2021
NasdaqGS:EPAY
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Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. Importantly, Bottomline Technologies (de), Inc. (NASDAQ:EPAY) does carry debt. But is this debt a concern to shareholders?

When Is Debt Dangerous?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Bottomline Technologies (de)

What Is Bottomline Technologies (de)'s Debt?

The image below, which you can click on for greater detail, shows that Bottomline Technologies (de) had debt of US$133.6m at the end of March 2021, a reduction from US$184.9m over a year. But it also has US$138.4m in cash to offset that, meaning it has US$4.89m net cash.

debt-equity-history-analysis
NasdaqGS:EPAY Debt to Equity History July 24th 2021

How Strong Is Bottomline Technologies (de)'s Balance Sheet?

We can see from the most recent balance sheet that Bottomline Technologies (de) had liabilities of US$167.9m falling due within a year, and liabilities of US$214.6m due beyond that. Offsetting these obligations, it had cash of US$138.4m as well as receivables valued at US$79.7m due within 12 months. So it has liabilities totalling US$164.4m more than its cash and near-term receivables, combined.

Of course, Bottomline Technologies (de) has a market capitalization of US$1.79b, 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. Despite its noteworthy liabilities, Bottomline Technologies (de) boasts net cash, so it's fair to say it does not have a heavy debt load! 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 Bottomline Technologies (de)'s ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Over 12 months, Bottomline Technologies (de) reported revenue of US$460m, which is a gain of 4.6%, 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.

So How Risky Is Bottomline Technologies (de)?

Although Bottomline Technologies (de) had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of US$57m. 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. Until we see some positive EBIT, we're a bit cautious of the stock, not least because of the rather modest revenue growth. 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 - Bottomline Technologies (de) has 3 warning signs we think you should be aware of.

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. 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.
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