While small-cap stocks, such as iClick Interactive Asia Group Limited (NASDAQ:ICLK) with its market cap of US$317.58M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Internet companies, especially ones that are currently loss-making, are more likely to be higher risk. Assessing first and foremost the financial health is vital. I believe these basic checks tell most of the story you need to know. Nevertheless, since I only look at basic financial figures, I suggest you dig deeper yourself into ICLK here.
Does ICLK generate an acceptable amount of cash through operations?
ICLK has built up its total debt levels in the last twelve months, from US$8.59M to US$12.98M , which is mainly comprised of near term debt. With this rise in debt, the current cash and short-term investment levels stands at US$29.48M for investing into the business. Moving onto cash from operations, its operating cash flow is not yet significant enough to calculate a meaningful cash-to-debt ratio, indicating that operational efficiency is something we’d need to take a look at. 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 ICLK’s operating efficiency ratios such as ROA here.
Can ICLK pay its short-term liabilities?
With current liabilities at US$126.57M, it appears that the company has not maintained a sufficient level of current assets to meet its obligations, with the current ratio last standing at 0.81x, which is below the prudent industry ratio of 3x.
Is ICLK’s debt level acceptable?
ICLK is a relatively highly levered company with a debt-to-equity of 76.26%. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. But since ICLK is currently loss-making, there’s a question of sustainability of its current operations. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.Next Steps:
At its current level of cash flow coverage, ICLK has room for improvement to better cushion for events which may require debt repayment. In addition to this, its low liquidity raises concerns over whether current asset management practices are properly implemented for the small-cap. This is only a rough assessment of financial health, and I’m sure ICLK has company-specific issues impacting its capital structure decisions. I recommend you continue to research iClick Interactive Asia Group to get a better picture of the stock by looking at:
- 1. Future Outlook: What are well-informed industry analysts predicting for ICLK’s future growth? Take a look at our free research report of analyst consensus for ICLK’s outlook.
- 2. Valuation: What is ICLK 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 ICLK is currently mispriced by the market.
- 3. 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.