Is Pegasystems Inc’s (NASDAQ:PEGA) Liquidity Good Enough?

Small and large cap stocks are widely popular for a variety of reasons, however, mid-cap companies such as Pegasystems Inc (NASDAQ:PEGA), with a market cap of US$4.42b, often get neglected by retail investors. Despite this, the two other categories have lagged behind the risk-adjusted returns of commonly ignored mid-cap stocks. PEGA’s financial liquidity and debt position will be analysed in this article, to get an idea of whether the company can fund opportunities for strategic growth and maintain strength through economic downturns. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into PEGA here. Check out our latest analysis for Pegasystems

Can PEGA service its debt comfortably?

A debt-to-equity ratio threshold varies depending on what industry the company operates, since some requires more debt financing than others. A ratio below 40% for mid-cap stocks is considered as financially healthy, as a rule of thumb. The good news for investors is that Pegasystems has no debt. This means it has been running its business utilising funding from only its equity capital, which is rather impressive. Investors’ risk associated with debt is virtually non-existent with PEGA, and the company has plenty of headroom and ability to raise debt should it need to in the future.

NasdaqGS:PEGA Historical Debt June 29th 18
NasdaqGS:PEGA Historical Debt June 29th 18

Does PEGA’s liquid assets cover its short-term commitments?

Since Pegasystems doesn’t have any debt on its balance sheet, it doesn’t have any solvency issues, which is a term used to describe the company’s ability to meet its long-term obligations. However, another measure of financial health is its short-term obligations, which is known as liquidity. These include payments to suppliers, employees and other stakeholders. Looking at PEGA’s most recent US$280.13m liabilities, it seems that the business has been able to meet these obligations given the level of current assets of US$624.17m, with a current ratio of 2.23x. Generally, for Software companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too capital in low return investments.

Next Steps:

PEGA has no debt in addition to ample cash to cover its near-term liabilities. Its safe operations reduces risk for the company and its investors, however, some level of debt may also boost earnings growth and operational efficiency. This is only a rough assessment of financial health, and I’m sure PEGA has company-specific issues impacting its capital structure decisions. I suggest you continue to research Pegasystems to get a more holistic view of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for PEGA’s future growth? Take a look at our free research report of analyst consensus for PEGA’s outlook.
  2. Valuation: What is PEGA 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 PEGA 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.