Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like RealPage Inc (NASDAQ:RP), with a market cap of US$4.90b, are often out of the spotlight. Surprisingly though, when accounted for risk, mid-caps have delivered better returns compared to the two other categories of stocks. Today we will look at RP’s financial liquidity and debt levels, which are strong indicators for whether the company can weather economic downturns or fund strategic acquisitions for future growth. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into RP here.
How much cash does RP generate through its operations?
Over the past year, RP has ramped up its debt from US$120.87m to US$649.52m , which comprises of short- and long-term debt. With this increase in debt, the current cash and short-term investment levels stands at US$101.65m for investing into the business. Additionally, RP has generated cash from operations of US$161.12m during the same period of time, resulting in an operating cash to total debt ratio of 24.81%, indicating that RP’s debt is appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In RP’s case, it is able to generate 0.25x cash from its debt capital.
Does RP’s liquid assets cover its short-term commitments?
With current liabilities at US$343.74m, it appears that the company is not able to meet these obligations given the level of current assets of US$340.37m, with a current ratio of 0.99x below the prudent level of 3x.
Can RP service its debt comfortably?
RP is a highly-leveraged company with debt exceeding equity by over 100%. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. We can check to see whether RP is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In RP’s, case, the ratio of 2.01x suggests that interest is not strongly covered, which means that lenders may refuse to lend the company more money, as it is seen as too risky in terms of default.
RP’s high debt level indicates room for improvement. Furthermore, its cash flow coverage of less than a quarter of debt means that operating efficiency could also be an issue. In addition to this, its lack of liquidity raises questions over current asset management practices for the mid-cap. This is only a rough assessment of financial health, and I’m sure RP has company-specific issues impacting its capital structure decisions. I suggest you continue to research RealPage to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for RP’s future growth? Take a look at our free research report of analyst consensus for RP’s outlook.
- Valuation: What is RP 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 RP 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.